GCC countries weathered the global economic crisis better than others, which saw some of their largest financial institutions collapse. The region has over the past few years taken enormous steps to reform the legal and regulatory infrastructure in order to diversify and foster stable economic growth and wean itself off economic oil dependency.
The IPO markets have shown signs of tentative growth with Saudi Arabia ahead of its neighbors. Companies considering whether or not to undergo an IPO will need to assess a number of factors and conditions.
Corporate Governance
One of the consequences of a company going public is the movement away from privately run structures that rely solely on individuals or family members. This is a transformational change for businesses in the GCC region which are predominately family owned or run.
In Qatar, for example, a listed company must adhere to corporate governance requirements. These are issued and outlined by the Qatar Financial Market Authority (QFMA), in the interest of greater transparency. The QFMA has benchmarked its Code of Corporate Governance (CG Code) against those set out by the Organisation for Economic Cooperation and Development (OECD), the International Finance Corporation (IFC), the Bank for International Settlements (BIS), the International Corporate Governance Network (ICGN), the World Bank Global Corporate Governance Forum (GCGF) and the International Institute of Finance (IIF).
The QFMA's CG Code covers a host of best practice processes. These range from accountability and independence of the board; compliance, internal controls and risk assessment; appointment of an independent external auditor; financial reporting and disclosure; minority shareholder protection; remuneration restrictions; and addressing conflict of interest and insider trading.
These would force a pre-IPO company to elevate its management strategies and techniques. Senior management leadership is needed to engage all stakeholders and individuals who have a vested interest in the company to ensure that sound corporate governance is embedded in the company's structure and culture.
Control
Companies considering going through an IPO need to take into account the impact of control and ownership structures. Issuing shares to the public may mean a change in majority control or result in dilution of control along with the creation of new relationships with a very different dynamic. As such, investors need to be mindful of this factor, that by going public their business is no longer limited to serving their underlying interest but now includes a wider spectrum of stakeholders.
Understanding this shift is critical and will no doubt impact the strategic decision making on the part of investors prior, during and after the IPO process in order to maximize the opportunity of going public.
Price Fluctuation
After the IPO, the company's share price and market value are exposed to volatility and its associated risks.
Road Map
Undergoing an IPO is a sensitive process that requires careful planning and investment. The challenges that a company will face before, during and after completion will be partly regulatory and partly market-driven. When considering an IPO, a company needs to submit to a rigorous consultation process with the assistance of advisors to asses its pre-IPO preparedness including looking at its business structure (and any need for reorganization), financial positioning and debt rescheduling to mitigate risk.
Advisors will also need to adopt creative strategies and practices that meet the regulatory requirements and not over-complicate the process to an extent that they diminish their chances of success. Additionally, investors will need to consider any implications associated with the facts that Qatar operates in a civil law jurisdiction and whose capital market is relatively young.
Approaching an IPO process in Qatar is quite unlike approaching an IPO process in mature capital markets that have deep and exhaustive regulations that govern these processes, which requires creative techniques.
Mohamed Khodeir is Partner and Head of Qatar Office, Al Tamimi & Company
© Zawya 2012
