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GCC IPO activity 'promising'

Foreign direct investment 'under pressure'
JEDDAH - The outlook for the regional IPOs is generally promising, although actual issuance activity is likely to be significantly influenced by the evolving market conditions in an uncertain environment, the National Commercial Bank said in its latest "GCC Financial Market Quarterly".
The report forecast that Saudi Arabia is expected to see a fairly steady flow of IPO activity during the second half of the year. Apart from IPOs, the telecom operator Zain KSA is undertaking a SR6 billion ($1.6 billion) rights issue in July as a way restructuring its capital. After the issue, the company will have an equity capital of SR10.8 billion.
Planned offerings include AlJazira Takaful Ta'awuni, the insurance unit of Bank AlJazira. City Cement Company, established in 2005 with capital of $550 million is planning to float 50 percent of its share capital in connection with its expansion strategy.
Other potential IPO candidates in the foreseeable future include Construction Products Holding Co., a unit of the Saudi Binladin Group, which is the largest producer of building materials in the Kingdom. It has appointed arrangers for an offering this or next year. Health Water Bottling of the Olayan Group is a similar position and planning to float a 30 percent stake no later than 1Q13. The private equity group Carlyle plans to gloat General Lighting Co. Also National Medical Care Co is planning to list. Aujan Group, Al Akhawain Co, HUTA Group, Gulf Stevedoring Co, and Alkifah Construction Equipment have delayed their IPOs.
Oman is expecting further IPO activity by the country's emerging Islamic banking sector. Al Izz International Bank (Bank Al Izz) is the second Shariah-compliant provider to receive a license. It intends to float a 40 percent stake worth some $260 million later this summer. The Omani Arab Bank is still under negotiations with it two partners on offering 25 percent as IPO later this year.
The leading mining and mineral processing company Northern Minerals (NMC), is seeking to expand its activities while turning itself into a public joint stock company. NMC is planning its IPO later this year to fund its expansion projects. Another IPO candidate is the Al Khalili United Enterprises industrial manufacturer.
The Kuwaiti Stock Exchange is progressing with its own restructuring into a public company which will float 50 percent of its shares. The other half will be offered by listed companies.
The Kuwaiti Airways Corporation (KAC) received approval from the Kuwaiti cabinet to convert into a joint stock company, 40 percent of whose shares will be bought by the Kuwaiti government. 35 percent will be offered to foreign investors, 5 percent to KAC employees, and 20 percent to public institutions. Also Kuwaiti Energy Company is expected to float 25 percent of its shares.
Qatar Exchange is expected to see three new listings this year: Barwa Bank, Al Jazeera Finance, and Maken Holdings.
However, foreign direct investment (FDI) in the region has been under pressure.
The region's FDI boom seems to have come under mounting stress in recent years. The UAE was the first one of the regional economies to take a major hit when the Dubai housing bubble imploded. FDI inflows plummeted from $13.7 billion in 2008 to $4 billion in 2009, although a gradual recovery has subsequently taken them to $7.7 billion as of 2011.
Qatar, initially relatively exceptional in defying the downward trend, has seen FDI flows contract from $8.7 billion in 2009 to $4.7 billion in 2010 and a small negative figure in 2011.
"Even the hitherto fairly resilient Saudi market now appears to have been caught in the whirlwind," NCB said in the report.
According to the latest SAMA data, FDI flows into Saudi Arabia dropped to an estimated $16.4 billion in 2011, down sharply on $28.1 billion in 2010 and $32.1 billion in 2009. The peak was reached with $38.2 billion in 2008.
These negative trends are in large part due to international developments.
The UNCTAD data shows global FDI inflows fell by 16 percent in 2008 and by a further 37 percent in 2009.
While the market subsequently bottomed out and rose to $1.4 trillion as of 2011, the recovery has been slow and the situation is far from 'normalizing' to the pre-crisis levels. The 2007 aggregate FDI figure was $2 trillion. As a result, FDI almost everywhere is down as investors retrench in a much more challenging economic environment.
Capital is less plentiful and confidence and risk tolerance have been tested by the persistent economic woes of especially the Western economies.
The Western brands that led the influx of investment into the GCC region have generally grown much more cautious. Although emerging market names have picked up some of the slack, they are less well positioned to do so because of their less advanced strategies and plans, in large part due to their traditional home bias in rapidly growing domestic markets.
The overall investor reserve is highlighted by the performance of the regional stock market which, while by no means directly comparable to the dynamics of FDI flows, highlights the elevated levels of risk aversion until the closing months of the year when something of a rebound took root in a belated recognition of the region's strong fundamentals and the economic stimulus measures adopted by most governments.
"Additional investor concern anecdotally appears to have been linked to new restrictions in the labor market and the perceived lack of new reform initiatives to foster investment," the report said.

© The Saudi Gazette 2012

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