Sep 10 2012
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Islamic IPOs could gain traction as sukuk issue costs remain high
The Middle East and North Africa witnessed an influx of initial public offerings and privatizations between 2005 and 2007 as most governments these as inevitable steps toward increased efficiency, more transparency, improved productivity, revenue growth and less corruption - an initiative that was more or less adopted by private companies as well.
According to Zawya's IPO Monitor, 2007 set a record with USD 14.44 billion raised via 71 IPOs across the region. Since then, the region witnessed a drop in the value of deals, which could possibly be attributed to repeated global financial crises and geopolitical unrest, prompting many companies to shelve IPO plans. Another reason could be the saturation of the privatization market as most government entities had in fact gone public already, leaving only a few countries such as Lebanon with huge potential for privatization.
In the meantime, a trend of Islamic finance and banking is invading the region, one that is dominantly populated with Muslims, leading to the rise in the number of companies working in compliance with Shariah, fully or partially. Most of these are financial services institutions. Will the region witness an increased number of Islamic IPOs in coming years? Will these benefit from the wealth of the Muslim investors in the MENA region?
According to Zawya, a number of Shariah-compliant and Islamic finance institutions are planning to float their shares in the market in 2012 or 2013, including Al Izz Islamic Bank in Oman and Al Jazira Takaful Ta'wuni Company in Saudi Arabia.
Equity or debt? That will always be the question for companies seeking to raise capital. While the cost of selling Islamic bonds remains high, and the sukuk industry awaits serious regulatory amendments, many companies could turn into IPOs and right issues, or stick to Islamic syndicated finance.
Adnan Halawi is the product manager of Zawya Islamic Finance and can be contacted at firstname.lastname@example.org.
© Zawya 2012
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