Three IPOs launched in the Middle East in rapid succession last week in a testament to the region’s resilience amid wider global market volatility in response to the US tariff announcement in April.

Dubai Residential REIT is the first to launch in the UAE since Eid al-Fitr at the end of April while low-cost carrier Flynas and Specialized Medical Company join United Carton Industries in the Saudi market, the latter having been first out of the gate in April.

“Turbulence had spooked investors all over initially, however, there is a roadmap for easing,” said Mostafa Gad, global head of investment banking at EFG Hermes, joint bookrunner on Flynas. “We see the market supportive of IPOs and valuations are still intact so it will open up more.”

Sentiment appears healthy around the deals, with Dubai Residential REIT having a decent shadow book of demand at launch while Flynas has been fielding meeting requests from across the Middle East and Europe.

A banker involved on the Flynas deal said feedback had been constructive on valuation and the range would likely come at an up 15% discount to Dubai-listed Air Arabia.

“In Saudi you don’t feel [the impact of tariffs],” said the banker. “Everyone seems to look at tariffs as an external thing.”

Mohamed Abou Basha, head of macroeconomic analysis at EFG Hermes, said: “It’s not necessarily any concern about the stories themselves but obviously markets to a large extent trade by sentiment so it’s important you hit the market when sentiment is fairly good and investors are ready.”

Abou Basha said the current volatility follows a number of events that the region has weathered without sustaining impact on markets, such as the pandemic and the Russia-Ukraine war.

“The region is further staging itself as a stable part of the world where it’s open for business,” said Abou Basha. “Currency pegs are a big asset as well and leave investors a bit less worried about the volatility globally we’re seeing in currencies, which is important obviously for global investors."

One notably absent deal is the listing of Abu Dhabi carrier Etihad Airways, which many now expect to push back its IPO at least to post-summer given the launch of Flynas.

While bankers are quick to emphasise the differences between high-growth budget operator Flynas and turnaround story Etihad, there is clearly good sense in spacing out the two listings.

The Flynas IPO is expected to be more than US$500m and could top US$1bn. Approximately one-third of the IPO is primary shares with proceeds going to fleet expansion and to establish new operations centres.

“There’s a growing mindset of using the IPO to fund growth,” said the banker on Flynas. “That is very healthy and provides an incentive for companies to IPO.”

In 2024, revenue increased 19% to SR7.56bn (US$2bn), Ebitda rose 31% to SR2.18bn and net profit was SR434m, up 8%.

Saudi Arabia has demonstrated success in listing growth companies on high multiples. 

Fintechs Tabby and Tamara remain highly anticipated with public listings now the next logical step following private funding rounds, though Tabby's listing is at least a year away having wrapped up a US$160m funding round in February.

Appetite for growth

Dubai Residential as a state-backed, high-dividend story provides a relatively safe market opener, although recent changes to UAE tax law for REITs has meant extensive investor education. The REIT listing is expected to reach up to US$500m-equivalent and offer a dividend yield of around 8%. A banker involved called it a "safe bet".

The key test will be the success of private sector issuance, which last year was troubled by weak aftermarkets.

A senior banker in the region said that investors always look to make a healthy first-day return but investors largely take a long-term view of the region, pointing to examples such as Tecom, which initially traded poorly before recovering.

Gad expects the government to fill in with some offers this year, although the private sector will likely continue to grow as a source of issuance and that is important as "we don't want to see a market addicted to high dividend yields".

The IPO of classified advertising platform Dubizzle is widely expected to be one of the next major tests of the UAE's appetite for tech-based growth stories. 

“The UAE market is anchored on yields as a result of government equities, which are quite mature,” said a regional investor. “A fair amount of investor education is needed. Saudi Arabia has both growth and dividend yield stories, though.”

Source: IFR