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Total IPO size in Gulf put at $875.29m

Dubai: The total size of the initial public offerings (IPOs) in the Gulf at the end of the first quarter of 2007 is $875.29 million, compared to $2,980.32 million last year.

So far this year, eight IPOs have been offered, seven of which are in Saudi Arabia - the same number offered during the same period last year, according to Zawya IPO Monitor.

But irrespective of the size of oversubscription of the largest offering of Air Arabia for the first three months of 2007, analysts feel the IPO scene for the first quarter indicates a healthy appetite for new shares in the Gulf as a whole.

Air Arabia 's size of offering is $713.03 million (Dh2.56b). However, last year, Masraf Al Rayan ( Al Rayan Bank ) and Emirates Integrated Telecommunications Company were the two biggest offers in the first quarter with sizes of $1,133.21 million and $659.97 million respectively.

Though the size of the companies are relatively small in Saudi Arabia, nonetheless there is an appetite from investors based on the number of times of oversubscription, analysts point out.

"I would say it was a very good start for the year," says Shadi Zubeidi, director, Global Investment Banking Advisory, HSBC-Saudi Arabia . "Comparing the demand of the first quarter of this year to the last quarter of 2006, you can see a big difference and improvement in investors sentiments. It was so difficult in the last months of last year to convince investors in Saudi Arabia to go out and subscribe."

The two which closed- Mediterranean and Gulf Cooperative Insurance and Reinsurance and Malath Cooperative Insurance and Reinsurance - were oversubscribed four and five times respectively.

"Taken in the context of the crash that happened in almost all GCC (Gulf Cooperation Council) countries in 2006, it is surprising that you can still raise money in the public market," Emad Ghandour, head of strategy and research at Gulf Capital, said.

"That only shows that there is basically a demand for fresh, new, exciting stories in the IPO market. If anything, there are signals that there is a lot of liquidity waiting on the sidelines for interesting opportunities."

Given the volatility and investors' appetite of last year, the Saudi Capital Market Authority ( CMA ) has done a good job by avoiding to bring in large IPOs in the first quarter, Zubeidi believes.

"It makes no sense whatsoever to bring huge - $2 billion or $5 billion - IPOs in first quarter when the market had big difficulty meeting the demand for much smaller IPOs in fourth quarter of last year. Now that the market conditions are improving, the CMA will allow larger IPOs to come to the market, more so after the demand we have seen in the first quarter."

Also, he points out, the CMA wanted to examine bank's capabilities in handling multiple IPOs at the same time. "It wanted to test this within smaller sized IPOs. So far we have not heard any problems with the banks handling the IPOS. Now we will start seeing more larger IPOs coming to the market at the same time."

Positive outlook

Both Ghandour and Zubeidi have not seen a major shift in the make up of investors. Small investors who got hit the most last year, they say, are still here and there is a demand from them as well as institutional investors.

"This is proven by the demand for insurance and reinsurance IPOs," says Zubeidi. "For every insurance IPOs [in Saudi Arabia] you have got 300,000 to almost 1.2 million subscribers, a clear indication that small investors are coming to the market."

It is expected the pace of IPOs - both large and small - will pick up from the second quarter and will follow for the rest of the year.

"Going forward things should be more positive," Ghandour of Gulf Capital says. He estimates about 40 IPOs hitting the market in the Gulf during 2007, the total value of which would be less than last year's $7.6 billion.

By Gaurav Ghose

© Gulf News 2007