The IPO pipeline across markets in the MENA region remains “promising” after several deals were postponed from 2023 to early and mid-2024 in anticipation of more favourable market conditions, according to a new report.

Findings of the ‘Regional Outlook for Banking and Capital Markets’ report, commissioned by the Dubai International Financial Centre (DIFC), in partnership with LSEG Data & Analytics, showed that even though tensions in parts of the region could lead to a more cautious market, Saudi Arabia and the UAE will continue to drive the IPO momentum.

“Deals will be driven mainly by Saudi Arabia, where 27 companies have expressed intent to list on the Saudi Exchange (Tadawul), in addition to expected follow-on issuances from Aramco and Savola. Meanwhile, the IPO pipeline in the UAE includes listings from Parkin, Lulu Group and Tabby,” the report said.

The privatisation of state-backed entities is leading to greater economic diversification, private sector development and sovereign liquidity creation, the report adds. As of March 2024, Dubai had followed through on six out of the 10 government entities it plans to take public, including Parkin, which was 165 times covered and attracted $71 billion in orders.

From the private sector, the listing of family-owned companies have also helped drive business growth, succession planning and enhanced governance and transparency, the report states. Al Ansari Financial Services, one of the UAE’s largest remittance and foreign currency exchange companies, owned by a local family group, raised $210 million from its 2023 IPO, while Spinneys, listed on DFM in April of this year.

The report adds that highly anticipated listings such as Lulu’s forthcoming IPO demonstrates an ever-growing list of incentives for other family businesses to follow suit.

A third wave of IPOs is expected through finTech and tech-enabled start-up exits, helping to stimulate new industries with high-growth potential, while creating strong demand from investors and viable exit options for VC investors.

“Driven by the rise in IPOs, capital markets across the MENA region have seen significant growth, with reforms dedicated to improving market infrastructure, attracting even greater foreign investment flows,” said Arif Amiri, Chief Executive Officer, DIFC Authority.

Outlook for 2024

According to Nadim Najjar, Managing Director, CEEMA, London Stock Exchange Group, the past two years have been a period of significant change for global capital markets with multiple Federal Reserve rate hikes, which began in 2022, leading to interest rates touching highs last seen in 2001.

“The shift in monetary policy has taken a toll on global capital markets, leading to lower company valuations which in turn caused many companies to postpone their IPOs until market conditions improved. The resulting increase in financing costs also discouraged issuers from tapping debt markets,” he said.

The regional expert said that despite these challenges, the MENA IPO market witnessed a surge in activity in 2022, driven by privatisation programmes in the UAE and Saudi Arabia.

“The growing trend of both public and private enterprises looking to list publicly has spurred global investment banks to broaden their advisory and underwriting services in the emirate. These emerging investment prospects are consequently drawing a wave of private capital, accompanied by wealth and asset managers to oversee these investments,” said Najjar.

Looking ahead, Najjar said “signs of a global market rebound [were] on the horizon.”

“With anticipated interest rate cuts later in the year, we expect a revival of postponed IPOs and debt issuances. We also anticipate more public listings from the private sector, which will increase sector representation in equity markets and contribute to deeper capital markets,” he added.

Market experts say IPO activity in 2024 will depend largely on global economic stability and a positive track record for recent post-IPO performances. Improving economic conditions in MENA would boost optimism that the market will revive in 2024, while other variables such as interest rates and market volatility will have a greater influence on market sentiment later in the year.

Issuers will closely monitor the performance of high-profile IPOs launched during the last quarter of 2023 and early 2024 as an indicator of investor appetite for new offerings. The convergence between issuer and investor valuations during this period is likely to improve post-IPO performance and pave the way for more IPOs coming to market in 2024.

Investors will continue to seek reasonably priced IPOs from companies that offer a balance between profitability and growth.

Meanwhile, the debt issuance market in the MENA region will follow the global trend, experiencing subdued growth in the coming year as interest rates remain high, with high costs of refinancing.

“Governments will continue to drive issuance in the region to cover expected budget deficits from lower oil prices, to refinance maturing debt, and to fund major development projects. Meanwhile, corporate debt issuance is expected to slow as the cost of borrowing remains high,” the report adds.

(Reporting by Bindu Rai, editing by Brinda Darasha)