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IPO activity in GCC faces challenging year: Deloitte

By Issac John DUBAI - After a year of sluggish initial public offering, or IPO, activity, 2012 looks to be another challenging one in terms of expectations for new listings in the GCC region, accountancy firm Deloitte said.

In 2011, the GCC witnessed only eight initial public offerings compared to 14 in 2010 as capital markets in the Middle East and North Africa, or Mena, raised $893.9 million in initial public offerings, posting a decline of nearly 70 per cent on the previous year as global IPO fundraising went down 45 per cent.

According to Global Investment House, during 2011, only nine GCC companies offered their shares to the public, with an aggregate value of $795.6 million, down by 54.9 per cent compared to 2010.

These IPOs were mainly concentrated in Saudi Arabia, with five Saudi companies floating their shares. The remaining offerings were one in Oman, and three in UAE.

During 2011, market capitalisation for the GCC markets dropped 7.1 per cent to $697.4 billion by the end of December compared to end of year 2010. The Saudi market constituted 48.6 per cent of the aggregate market capitalisation of GCC stock markets.

Total volume of shares traded during 2011 stood at 133.8 billion shares, which was 21 per cent lower than aggregate traded volume in 2010. In the meantime, value of shares traded increased from $296.7 billion in 2010 to $356.1 billion in 2011, up by 20 per cent, Global said.

The largest IPO of 2011 in Mena was the UAE's Eshraq Properties ($229.1 million), followed by Saudi Arabia's Hail Cement ($130.5 million) and United Electronic ($105.6 million).

Saudi Arabia led the country standings in 2011, raising $460.5 million through IPOs, followed by the UAE with $271.3 million and Oman with $63.9 million.

However, according to Deloitte, on the positive side, given the scarcity of recent issuances, businesses that achieve readiness will attract greater investor interest, experience a shorter and more efficient IPO execution and approval process and, most importantly, the ability to list when they want rather than when they can.

Deloitte said an important development across the GCC over the last two years has been the ongoing review and revision of the listing rules by the Saudi Capital Market Authority, Dubai Financial Services Authority, and the Qatar Financial Markets Authority, amongst the larger regional exchanges. These revisions have been instituted with an aim to raise the minimum requirement around corporate governance, business systems and processes, and financial discipline at a level that would be required of a listed company.

"Based on interaction and discussion with the regional regulators, the main themes coming out are around greater transparency, a stringent requirement that IPO candidates have robust financial systems and environment, and for the business to have world class corporate governance once listed," said Declan Hayes, managing director for transaction services at Deloitte Middle East.

The global auditing company said the requirement for due diligence is being raised and prospective issuers that are not already meeting listed company obligations are being told to take more time to remedy such deficiencies and reapply once ready.

"The message for issuers is quite clear, what may have been acceptable in the past may not be adequate going forward. Therefore to run an efficient and rewarding process for all stakeholders, you need to be IPO ready before commencing the journey," said Hayes.

"Regionally we are monitoring a pipeline of corporates that are aspiring to access the equity capital market in the GCC and indeed internationally, ranging from business at an early pre-IPO stage to issuers who are undergoing an approval process with the respective listing authorities," said Adnan Fazli, director of the capital market transaction services team at Deloitte Middle East.

© Khaleej Times 2012