|23 March, 2020

GCC IPOs could be delayed as coronavirus outbreak hurts investor appetite

As many as 16 IPOs expected to take place in 2020 may not materialize

A Saudi man stands in front of a screen as another inspects stock prices at ANB Bank in Riyadh, Saudi Arabia September 16, 2019. Image for illustrative purposes.

A Saudi man stands in front of a screen as another inspects stock prices at ANB Bank in Riyadh, Saudi Arabia September 16, 2019. Image for illustrative purposes.

REUTERS/Ahmed Yosri

Many companies in the GCC region might delay their initial public offering (IPO) plans this year as gloom weighs on investor sentiment over the outbreak of the coronavirus, analysts have said.

Raghu Mandagolathur, Managing Director of Marmore Mena Intelligence, told Zawya that he expects companies to start delaying their IPO plans until conditions become favorable for raising capital.

“Initial impressions during the start of the year were that we would see roughly about 16 IPOs in the GCC during 2020,” he said. “However, we may now see some IPOs being pushed back due to the spread of coronavirus and uncertainties in the oil market.”

The World Health Organization declared the coronavirus a pandemic earlier in March after the number of infections outside China increased dramatically over the span of two weeks.

In the same month, OPEC failed to strike a deal with its allies, led by Russia, on oil production cuts, which effectively means that members can now pump what they like starting April 1.

Saudi Arabia slashed crude prices for April and planned output hikes after Russia refused to support deeper oil production cuts. Brent Crude oil prices plunged as a reaction to the news and have been trading last week near the $30/barrel level, down from the $51/barrel level recorded at the beginning of March.

“Oil price volatility and indices like the OIV index are at lifetime highs and will simply have to come down for both corporate issuers and investment bankers to reassess IPO plans in the region,” Thomas Mathew, Assistant Vice President, Kamco Invest Research, told Zawya.

“Oil price stability remains the most important factor behind GCC project spending forecasts, which in turn are driven by government spending and credit from the banking sector,” Mathew said.

Fears about the impact of the coronavirus on the global economy also led to a plunge across global markets in recent weeks, wiping out billions of dollars.

“We’ve always maintained that periods of volatile secondary markets are not great for IPO forays,” Mathew said.

“From a valuation perspective too, given that secondary markets hold the key; the fact that the MSCI GCC index is down close to 27 percent could lead corporate issuers and investors to be concerned about IPO valuation, subscription and price discovery,” he added.

In Saudi Arabia, the food chain Hamburgini announced last year that it would list on the Tadawul in 2020, and Reuters reported in September that BinDawood Group, a Saudi retailer, had asked banks to pitch for roles in a potential IPO of its supermarket business. In the UAE, MAG Development expressed interest in listing in a year or two, and Bayt.com also mentioned the possibility of an IPO. 

Outside the GCC, Ahram Online reported, citing sources, that Egypt’s government has postponed its planned government IPO programme in light of its procedures to contain the coronavirus threat.
The government had previously planned to offer shares in public-owned companies on the Cairo exchange.

The Aramco IPO initially raised $25.6 billion and kicked off trading of its shares in the second week of December. The value of the IPO increased to $29.4 billion after Aramco exercised its greenshoe option and issued 450 million additional shares, worth $3.8 billion.

The state-owned oil giant’s IPO is currently the world’s largest, surpassing the $25 billion record set by China’s Alibaba in 2014.

“The value of (MENA) IPOs listed in 2020 will decrease from 2019, since the Q4 2019 saw the listing of the world’s biggest IPO, Aramco,” Gregory Hughes, MENA IPO Leader at EY, told Zawya, adding that current market conditions make it hard to predict the volume and value of upcoming IPOs in the MENA region.

MENA IPO ACTIVITY SURGED IN Q4 2019

EY’s MENA IPO Eye report published earlier in March shows that the IPO deal value in the MENA region rose significantly in Q4 2019. Led by Saudi Aramco, the quarter saw five IPOs that raised a total of $30 billion, compared with two IPOs that together raised $190 million in Q3 2019.

According to EY’s report, global IPO exchange activity also picked up in Q4 2019, when 353 IPOs raised $84.5 billion, a 25 percent increase in IPO volumes compared with Q1 2019.

“Both the global market and the MENA market saw activity pick up during Q4 2019,” said Matthew Benson, MENA Transaction Advisory Services Leader at EY. “The trend over multiple quarters indicates a recent slowing down in overall IPO activity; however, in the MENA region, this has been driven by the decline in REITs and Nomu listings in Saudi Arabia since 2017 and 2018, and IPO activity has remained broadly stable year-on-year.”

Boursa Kuwait raised $33 million by issuing 50 percent of its own shares in October 2019. This was the first IPO in Kuwait since Kuwait Telecom Company raised $98 million in 2008.

In Oman, the Musandam Power Company raised $23.1 million in November 2019 by issuing 40 percent of its equity shares on the Muscat Securities Market. The EY report notes that Oman’s Capital Market Authority has approved the first prospectus of Aman REIT, which allows foreign investors to own real estate in the sultanate indirectly.

In Egypt, the IPO of Tenth of Ramadan for Pharmaceutical Industries and Diagnostic Reagents (Rameda), an Egyptian pharmaceutical company, was oversubscribed at 117 percent and raised $108.7 million.

(Reporting by Gerard Aoun; edited by Daniel Luiz)

Gerard.aoun@refinitiv.com

#GCC #IPO #CORONAVIRUS #INVESTMENT

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© ZAWYA 2020

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