After the meteoric rise came the dreaded crash. Despite a burgeoning economy and high oil prices, the market value of the Top 150 listed companies in the GCC was pared down by a whopping $115 billion over the past 12 months. The decline is symptomatic of the crash that saw almost two-thirds in capitalisation of some of the GCC bourses being wiped off in a matter of a few months. Walid Shihabi of Shuaa capital tracks the fortunes of the listed companies in the region for gulf business' annual survey of the Top 150 Listed Companies in the GCC.
In stark contrast to what had seemed to be an unabated rise in the value of regional companies over the past five iterations of Gulf Business' annual survey of the Top 150 Listed Companies in the GCC, the results this year provide a more sobering picture. The combined value of the GCC's 150 largest listed companies by market capitalisation has fallen by over $115 billion from the figure recorded in last year's survey.
This despite over $33 billion worth of newly listed companies entering this year's list on the back of a very active year for IPOs in the Gulf, and almost as much in terms of new equity issues by existing companies on the list. The picture illustrates the degree of decline the markets of the Gulf collectively witnessed over the past year, in a retraction of what proved to be an unsustainable speculative bubble in equity prices across the region.
Despite the substantial decline in value witnessed by almost all listed companies in the region, the standings of the five largest listed companies in the Gulf remained almost unchanged. Sabic, Saudi Arabia's petrochemicals giant, managed to retain the top spot despite losing a massive $56 billion in market value over the past year, an amount equivalent to the total current value of Saudi Telecom Company, which in turn managed to retain its position as the second largest listed company in the region.
The only change among the top five positions came as a result of Samba Financial Group taking over the fourth spot from the UAE's bellwether, Emaar Properties, as the former was among the few companies to record an increase in value over the past year, with a current market capitalisation of over $26 billion compared to $19 billion at this time last year. Rounding off the top five positions was Etisalat, which retained fifth position, but also became the largest UAE listed company on the list after Emaar Properties was pushed down to the seventh spot overall.
Saudi companies continued to dominate the higher end of the list, with four of the top five and seven of the top 10 companies. The top 10 list witnessed the return of National Bank of Kuwait at number 10 while it also witnessed the exit of Industries Qatar, which dropped five spots to number 12 on the list.
New entrants
The topmost new entry in this year's survey was claimed by Saudi Arabia's Yansab, a subsidiary of Sabic which witnessed an IPO late in 2005, and which came in at number 29, immediately followed by the UAE's second telecom operator, du (number 30), which witnessed an IPO in March of this year and listed on the Dubai Financial Market soon after.
Of a total of 21 new entries to this year's survey, 16 were a result of IPOs witnessed over the past year. Almost all these IPOs were of UAE and Saudi Arabian companies, which is a testament to the strength of activity of the primary markets in these two countries in particular. Among the most notable new companies this year are Saudi Arabia's 'dairy queen' Almarai, Abu Dhabi-based utilities company Taqa, leading publisher Saudi Research and Marketing Group, Logistics company Aramex and Islamic mortgage finance company Tamweel.
Also notable among the new entries into the Top 150 Listed Companies for this year was the first company to be listed on the newest exchange in the Gulf, the Dubai International Financial Exchange. Kingdom Hotel Investments came in at number 103, with a total market capitalisation of $1.2 billion, although this was somewhat below the value at which the company was originally floated.
The young exchange could have boasted yet another entry onto the list with Dubai-based telecom firm Investcom, which was last traded at a market capitalisation of over $5 billion. That value would have landed it at number 32 on the list, but the company was acquired by South African operator MTN, and had been delisted from the exchange by the time this list was compiled.
Holding fort
Saudi Arabia continued to dominate the list with 57 companies, up from 51 last year although its share of the total value slipped marginally to 59.5 from 60.7 per cent. The decline in Saudi Arabia's share of the total was due to a larger decline in stock prices than average Gulf-based markets over the same period. Another market to lose share in the list was Qatar, as the steep decline in stock prices saw its share of the total drop to 8 from 9.3 per cent last year.
The relative decline in these two markets came to the advantage of Kuwait and Bahrain's position, as Kuwait cemented its position as the third largest market with 11.6 per cent of the total market capitalisation, and Bahrain at fifth with 1.6 per cent. The UAE retained both its position, at second largest, and its total share, at 18.6 per cent, as its weaker performance was countered by large new entries onto the list. The total number of UAE listed companies on this year's list grew to 37, up from 33 last year.
On an average, and according to the regional benchmark Shuaa Capital GCC Index, Gulf markets lost more than 18 per cent over the past 12 months. They have lost substantially more from their relative peeks which where reached either towards the end of 2005 or early in 2006. This decline was not instigated by any deterioration in the economic performance of countries of the GCC. On the contrary, strong economic growth continues unabated, as ever-higher oil prices compliment an invigorated private sector, and governments increase their capital expenditure and invest in massive upgrades for the region's infrastructure.
...All fall down
He decline witnessed by the region's stock markets was rather a normal, although abrupt, reaction to the excesses represented by runaway stock prices and an unsustainable equities bubble. And the pace of the decline was much faster than the rise.
The Saudi Arabian market, at one point the single largest emerging market by capitalisation, shed 50 per cent of its value in a matter of two-and-a-half months, wiping out all the gains it had realised over the preceding year. The popular market in Dubai managed to fare even worse, losing almost 60 per cent from its peak, as the market de-leveraged itself, and returned to more meaningful levels.
And yet the picture continues to look rather healthy. At almost $800 billion, the region's market capitalisation remains among the largest and most impressive among global emerging markets, but this time at valuations that correspond to their emerging market peers.
Most markets in the Gulf actually currently trade at an average forward earnings multiple that is lower than most global emerging markets, with some even in single digit territory, which has prompted the view that the correction witnessed in many markets has been overdone, and that a recovery to reflect the positive fundamentals of the market may be due.
Any such recovery is likely to prompt market capitalization of the region's markets to rise although the most likely way through which the total market capitalization of the top 150 companies list would rise yet again next year would be through the floatation of a number of the region's commanding heights. And the signs are promising.
Sector wise
Companies represented in this annual survey continue to be heavily weighted towards the banking sector, with this year in particular seeing the sector's share of the total capitalisation rise to 40 from 36 per cent last year, at the expense of almost all other sectors. This wasn't only because the sector managed to outperform most others in a down market, but also because the sector witnessed the most aggressive new share issuance this year, which boosted the capitalisation of many banks.
The industrial sector, practically dominated by Sabic, came in second with 21 per cent while the telecom sector retained third place with almost 18 per cent of the total. Other important sectors included real estate, with 6 per cent, and utilities with almost 4 per cent.
But this picture does not represent accurately the economic composition of the Gulf region. While banking is an important constituent of economic activity in the region, its contribution is seldom above 10 per cent of the total. In contrast, real estate and construction constitutes a larger and growing component, and it is not done justice by the 6 per cent share of market capitalisation.
Other important sectors are also underrepresented by the markets, including utilities, which despite some privatisation efforts, remain largely in the hands of the governments; transportation, which is a booming sector that suffers from some fragmentation; and hospitality, which is a relatively new but important growth driver.
Of course, the major sector that remains practically absent from the markets of the region is the oil and gas sector. The largest component of this sector, upstream oil and gas production remains firmly in the hands of the region's governments, and is likely to remain so for the foreseeable future. But other important components of this broader sector are also absent from the market, and for no good reason. Downstream oil and gas industries including refining and petrochemicals come to mind, as well as the burgeoning oil and gas services sector.
Within the former category, petrochemicals are represented relatively well by Sabic and Industries Qatar although other major producers in the UAE and Kuwait remain absent while refining remains completely absent. But the most effective proxy for the fortunes of the oil and gas sector, which is the oil and gas services sector is the one sector that is missed the most.
One of the leading regional companies in this sector, Petrofac, was floated successfully last year. But rather than listing on any of the region's exchanges, the company chose to list on the London Stock Exchange, which meant that it was excluded from this survey. Had we included it, it would have featured at number 75, with a market capitalisation of almost $2 billion. This leaves only one company, the relatively smaller and narrower focused Abaar Petroleum, as the sole representative of this sector in the region's markets.
It is from these sectors in particular that the greatest number of additions for next year's survey is expected to come. Expect no respite in the activity of the region's primary markets over the next 12 months as news of major new and highly anticipated floatations continue to surface. The real estate sector will see the addition of Emaar's Saudi Arabian subsidiary, Emaar the Economic City, which witnessed its IPO shortly before we conducted this survey, but has yet to list on the country's exchange, while other established developers are likely to follow suit.
The transportation sector may witness the addition of Saudi Arabia's flag carrier, and possibly others. The hospitality sector is also likely to produce new listings as the private equity industry in the region has been particularly active in this space. Government-owned crown jewels in the field of infrastructure transportation and utilities in the UAE may tap the market soon as preparation for a privatisation drive seems under way. Also, the oil and gas-related industry might, in its ever-increasing need for higher capital expenditure, tap the public markets instead of an increasingly tight project financing market.
It is given these compelling drivers that next year's list may look different in composition, and may include at least one new addition to the top 10 list. Also, it may be entirely possible that within the next three years, the collective value of the region's top 150 companies reaches the heralded $1 trillion mark. Just watch the scramble of international investment banks to set up operations in the Gulf for proof.
© Gulf Business 2006
