One can hardly describe the recent pick up in initial public offerings in the Middle East and North Africa region as a recovery. As of July 22, the number of IPOs in 2009 stood at 11, down 75 percent year-on-year, while the total value of offerings fell to $1.9 billion, a fraction of the $12.5 billion raised over the same period in 2008.
Indeed, the MENA IPO market has become more talk and less do, pending clearer signs of a banking and real estate sector recovery, in addition to a turnaround in general economic activity, expected to take hold in early 2010.
The average size of offerings has also dropped by 39 percent to $172 million, reflecting the cautiousness of companies in their efforts to raise capital. Even average oversubscription multiples have fallen off a cliff from 17.17 times in 2008 through July 22, to only 3.61 times over the same period in 2009.
Nevertheless, some signs of a recovery have emerged on the back of the three month global equity rally that started in March. Second quarter IPO activity accelerated to reach seven IPOs that raised $1.13 billion compared to just two IPOs raising $84 million in the first quarter of the year.
Following the weak upward trend, July saw the opening of two IPOs worth $676 million, up from only one worth $106.81 million in June. National Petrochemical Company’s $639.95 million share offering as well as Qatar National Bank – Syria’s $34 million IPO were the talk of the month as Saudi Arabia and Syria have recently become the bearers of the last IPO flames in the MENA region.
Both IPOs have attracted strong demand from investors, as Saudi Petrochem’s IPO was 52 percent covered on July 18, the first day it opened, while QNB – Syria’s IPO is reportedly seeing “surprisingly strong interest” in its first few days of a month-long offering.
Saudi Steel Pipe Company’s IPO, which closed on July 3, was oversubscribed by 344 percent. The company offered 31.4 percent of its shares to the public, raising $106.81 million in just one week.
The lagging number of public offerings and the retreating equity markets have not limited some companies from planning future IPOs. Dubai-based and government-owned Aswaaq plans to offer 55 percent of its shares to the public during the first quarter of 2010. “We believe the economy will start rebounding in the fourth quarter of the year. When it does, we expect it to be at a slower pace and that is OK,” said CEO, Abdul Baset Al Janahi.
The Saudi government also said it may sell part of the $13.4 million shares of Tabadul, the Saudi state-run information exchange company, in an IPO in the future. Also in Saudi Arabia, the Shura Council recommended the sale of Saudi Arabian Airlines in an IPO instead of privatizing the company. Later reports citing Abdullah al-Ajhar, assistant general manager for public relations, said only part of the shares will be sold through an IPO.
To list is good
Listing has been a good move for investors and companies in July. Vodafone Qatar and Al Rajhi Company for Cooperative Insurance were the only two companies to list their shares on an exchange in July, and both rose 14 percent and 670 percent, respectively, on their first trading day, reflecting the positive sentiment surrounding new IPOs and listings in the region.
The Vodafone IPO in April in fact contributed to tripling the number of share issuances to three in the telecom sector, making it the only sector to experience a year-on-year increase in IPO activity. Issuances in the financial services, real estate and construction sectors in 2009 through July 22 stood at only six, down from 24 in 2008.
On a national basis, the number of MENA stock exchanges to have a share issuance has dropped from 11 to only the Saudi Stock Exchange (7), Damascus Stock Exchange (2), Qatar SE (1), and Tunis Stock Exchange (1) in 2009, through July 22. Amman Stock Exchange is the most notable absentee from the IPO market, after seeing the issuance of shares for 11 different companies during the review period. Amman’s missing IPOs appear to be for good reason: in early July, Al Tajamouat for Tourism Projects, an affiliate of Bahrain’s Unicorn Investment Bank, said its rights offering, which closed on June 21, was only 76 percent covered, raising only $21.4 million instead of the targeted $28.1 million.
The IPO market in the MENA region was hardly alone in its downturn, but is slowly losing out to foreign markets. Unlike the MENA region, global IPO activity appears to be returning with vigor following the announcement on July 22 that China State Construction Engineering Corporation received approval to raise over $7 billion in capital.
In June, China officially removed a ban enacted in September 2008 on new offerings, paving the road for massive IPOs on the Shanghai Stock Exchange. The State Construction IPO will be the world’s biggest since Visa’s $19.7 billion IPO in March 2008 and the country’s largest since PetroChina in October 2007.
US investment firms, including Apollo and Alliance Bernstein, have recently created Real Estate Investment Trusts (REITs) that would raise almost $4 billion in capital through IPOs to invest in commercial real estate.
Going forward, despite the full-pipeline that is driving a medium-term positive outlook, IPO activity may slow further as market participants, especially in the Gulf, leave for vacation during the hot summer season and Ramadan.
Regional Press Network
