As regional capital markets remain volatile, analysts say companies who are contemplating initial public offerings (IPOs) may not find enough takers for new equity in 2009. The IPO market had been a star in the bull markets for the last several years, but had lost its charm by mid-2008 and is likely to face bleak days ahead in 2009.
On the upside, there is still a large number of planned and announced IPOs for the first half of 2009. According to reports by Zawya Dow Jones, there are over 40 companies scheduled to launch their IPOs in the first half of 2009. Some market watchers are guardedly optimistic about this flotation pipeline, saying that investors’ sentiments are improving.
For the moment, however, all indications suggest that investors and capital seeking companies alike continue to remain on the sidelines waiting for capital markets to stabilize before they go after IPO opportunities in the region. A good example is that of Kuwait-based Burgan Bank, which cancelled its plans for a $697 million capital increase after the authorities decided against issuing a decree for the increase for reasons, observers say, “related to the turbulent regional and global market conditions.”
While there is no consensus as to when IPO activity will recover, however, announcement about new IPOs in January show that confidence in the IPO market is being built tick by tick. January witnessed the announcements of six new IPOs — much lower than the monthly average for most of 2008, which was around 10 IPOs.
“Companies are preparing for IPOs because the long-term strategic rationale for such transactions has not changed,” said Phil Gandier, a partner of transaction advisory services of Ernst & Young Middle East. Many companies are likely to push ahead with their plans in 2009 despite the global economic meltdown, Gandier added in a report in January.
Saudi Arabia, the region’s largest economy, which accounted for 78 percent of the cash raised through flotation in 2008, will be the host of an IPO of Etihad Atheeb Telecommunication Co. The company, one of three firms that were licensed to run a fixed-line network in Saudi Arabia, said it will offer 30 percent of its shares to the public in accordance with rules for new telecoms operators. The company scheduled its public offering to start on January 24 and to conclude on February 2, as it seeks to raise $80.08 million.
Also in line with regulatory requirements in Saudi Arabia, Al Alamiya for Commerce and Services, part of the Royal and Sun Alliance Insurance Group, is preparing to launch an IPO after it was granted a royal decree to operate as a licensed insurer in Saudi Arabia, the firm said.
While the measure is mandatory, sources close to the company say that they are optimistic that the offering will do well. Another insurance firm taking the dip after it was recently established with a capital of $53 million is the Global Company for Cooperative Insurance. The company did not provide details about the floatation but it was established by Riyad Bank who owns a 30 percent stake. The IPO is scheduled for the second half of 2009.
Moving to the most battered economy in the region from the global financial crisis, the UAE provided several announcements. The Kuwait-based Esdarat Holding Company plans to list on Nasdaq Dubai in the second half of 2009 to fund real estate development projects worth $2.8 billion. Although the company did hint at an IPO in June of 2008, instead it chose to go with a private placement first raising $110 million with Emirates NBD Capita in December.
But the amount raised in the private placement was only 37 percent of the original target of $300 million. “The management decided to raise the remaining amount though an IPO,” said Imad Awad, director and head of Equity Capital Markets at Emirates NBD Capita. Esdarat plans to launch the IPO in late 2009.
Mawarid Finance, a provider of Islamic credit and financing activities, said it will offer its shares to the public in 2009. The company will be listed on the Dubai Financial Market. Although there were no clear details as to the offering, the company’s CEO Mohammed Musabbeh Al Neaimi, told the press, “We intend to offer between 25 and 30 percent of shares to foreigners after getting approval from the general assembly.”
Meanwhile in the Levant, Syria finally launched the Damascus Stock Exchange in mid-January and is scheduled to begin experimental trading on the 29th. The launching of the exchange comes after a two year delay.
Among the first companies to be listed and the first brokerage firm to be licensed in Syria, Al Adham Foreign Exchange Company, said it will offer 70 percent of its shares to the public seeking to raise $3.69 million. It will offer 350,000 of its shares at a par value of $10.90 each. The remaining 30 percent will stay with the founders. The IPO will run from January 18 to February 6, a statement said.
Following suit, Syria’s Noor Takaful Insurance Co. also announced that it launched an IPO to sell 50 percent of its shares with an aim to raise $16.3 million. Noor has a capital of $31.5 million and is offering 1.5 million shares at $10.90 each. Noor Takaful Insurance is 20 percent owned by the Kuwait-based Noor Financial Investment Co.
Also in the Levant, Lebanon’s flagship carrier, Middle East Airlines (MEA), appears to be on and off the IPO bandwagon. Initially, MEA was scheduled to float its shares on the Beirut Stock Exchange (BSE) in 2008. But due to political instability the plans failed. And now, MEA’s Chairman Mohammed El Hout, said the company will not list its shares in 2009 due to the “unfavorable” market conditions. “We will not list part of the airline’s shares on the BSE because projections in the markets do not look very promising,” Hout said.
As far as IPO and stock market debuts, the MENA region started the year with a definite dry spell. The only noteworthy events in January were three rights issues in Kuwait and Egypt, while another rights issue on the Egyptian exchange appears to have been withdrawn. The two capital increases on the KSE accounted for almost 99 percent of the aggregate value of rights issues companies offered in January. Kuwait’s Abyaar Real Estate closed a 100 percent rights issue worth $242.5 million on January 8 and construction group MENA Holding launched its rights issue worth $316.8 million on January 13.
I see the tunnel, but where’s the light?
The IPO market in 2009 will be slow, but the few issues that come to market may provide significant returns, experts say. With many regional economies set to experience substantial growth this year it appears that 2009, or at least the second half of it, will offer fresh hope as far as new IPOs are concerned.
“With IPO volume low, many investors will be tempted to ignore the IPO market altogether as we move into 2009,” writes Renaissance Capital. “This may be a mistake. Historical precedent suggests that IPOs in periods of low issuance can generate very strong returns as companies are forced to become more realistic with their proposed valuations in order to successfully raise capital, thereby creating opportunities for investors.”
As can be surmised by the number of IPO announcements for January and the overall number for the first half of 2009, some industry players believe IPOs could pick up by the middle of the year. The MENA region is expected to possibly lead the bulk of IPOs globally in 2009.
Observers rightly point out that the region is where the faster growing companies reside. These companies need to tap the capital markets to fund expansion. As such, improved activities in the IPO market might be a clear indication that the doom and gloom of 2008 will soon be history.