Chasing the dragon

MENA investors look to the far East for their IPO adventures

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With monster-sized bank offerings and strong growth in primary markets activity,  the global landscape of initial public offerings made a strong showing in the first seven months of 2010. However, in Arab markets, the picture included pea-sized volumes, vastly overestimated listing numbers and IPOs that went into hiding.  

Keeping count of initial public offerings in the Middle East and North Africa during the first half of 2010 was a simple task, with the total raising of funds in the $1.2 billion range from 16 IPOs with completed subscription by June 30. The tally for standard entries into the sphere of public trading across the MENA is mouse-like next to the 800-pound gorilla in the 2010 global IPO market, China.

Saudi Arabia was the stage for seven offerings across the MENA, followed by four in Tunisia (which included one with a double listing in Morocco), two in Syria, and one each in Egypt and Qatar. Four of these stocks, including Mazaya Qatar Real Estate, which closed its subscription at the end of January, have yet to start trading.  

No starker contrast could be imagined to the Far East. Roaring with new issues to the tunes of $22.6 billion and $8.9 billion, the Shenzhen and Shanghai stock exchanges in the Middle Kingdom led the world IPO action in the first half of 2010, according to a report by the World Federation of Exchanges. That was before the IPO of Agricultural Bank of China (AgBank) raised $19.23 billion in July in a dual offering on the Shanghai and Hong Kong bourses.

The biggest offering in an Arab stock market so far was the 1.02 billion riyal ($272 million) measure by Saudi Arabia’s Knowledge Economic City Co. in May. It attracted almost 2 million investors and subscription demand reached $469 million, said lead manager NCB Capital. At the time of writing, the stock has yet to commence trading on the Saudi Stock Exchange.

The average offering size for MENA IPOs in the first half of 2010 was in the vicinity of $75 million. Regional investors did not limit themselves to the region’s primary market opportunities; China’s AgBank IPO, for example, was rather attractive to GCC money. With subscription to 6.8 billion shares or a stake of over 22 percent, the Qatar Investment Authority is being cited as the largest single holder of AgBank shares issued in Hong Kong. The Kuwait Investment Authority also was a massive subscriber, picking up 1.95 billion shares. The AgBank price per share on July 22 closed near $0.42, confirming that alone the Qatari investment in this Chinese IPO is worth over two times all initial public offerings on MENA exchanges for the year to date.

Including one Middle Eastern IPO in July, of the Saudi Al Jouf Cement Co., the cumulative value of 17 MENA IPOs in the first seven months of this year is $1.38 billion, more than $500 million short when compared with the region’s 11 IPOs in the same period last year, according to Zawya.com data.

The value disparity is mainly on account of the April 2009 Vodafone Qatar issue, which pushed the average offering size in the first six months of 2009 from about $94 million up to over $170 million.  

However, the demand for IPOs in the region has otherwise shown definite upsides in year-on-year comparison. For the offerings in 2010 to date, average subscription demand has exceeded more than nine times the capital offered, which indicates a resurging investor interest when compared with the paltry appetite of four times demand in the first half of 2009.

Investors also saw improved returns on primary market subscriptions when reviewing the performance of IPO stocks in relation to market indices across the Gulf Cooperation Council. While stock market indices provide depressed numbers for the first half in general and individually for the time since floatation of the 2010 IPO stocks, the performance of the new stocks was solid, and overwhelmingly positive for the parameters of first-day, first-month and total time since trading debuts.   

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail

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