|03 August, 2016

IPOs muted as volatility weighs on investors

The GCC's IPO performance in the second quarter (Q2, 16) remained low as oil prices and global economic volatility, regional political unrest as well as the recent UK vote.

Kuwaiti investors watch the price index boards at the Kuwait Stock Exchange October 7, 2008.

Kuwaiti investors watch the price index boards at the Kuwait Stock Exchange October 7, 2008.

REUTERS/Stephanie McGehee
03 August 2016
DOHA: The GCC's IPO performance in the second quarter (Q2, 16) remained low as oil prices and global economic volatility, regional political unrest as well as the recent UK vote on the referendum to leave the European Union (EU), Brexit, continued to bring uncertainty to GCC markets.

The first regional offerings in the Q2 was by Al Yamamah Steel Industries Co that owns and operates steel plant factories, who offered 15.24 million shares to the public and raised proceeds of $147m.

The second offering was by L'azurde Company for Jewellery which designs, manufactures and distributes precious metals in the Mena region, who offered 12.9 million shares. Both companies are listed on the Saudi bourse Tadawul, audit and assurance services firm PwC noted yesterday.

Looking at IPO performance in Q2,16, compared to the same period in the prior year, the number of IPOs diminished by half and the total proceeds raised in the Q2 were approximately four times less as compared to Q2, 2015.

In terms of IPO performance compared to the previous quarter of this year, although the number of IPO's in Q2 2016 doubled, the total money raised of $274m from the two offerings fell by 42 percent compared to Q1, 2016.

Furthermore, IPO activity in the first half of 2016 (H1, 2016) decreased compared to H1, 2015, with total proceeds raised of $745m via 3 deals, compared to $1.3bn via 5 deals. The Tadawul has been the only active market in H1, 2016, albeit with relatively low volumes.

Steve Drake, Head of PwC's Capital Markets and Accounting Advisory Services team in PwC Middle East, said: "Whilst uncertainties with oil prices remain and regional geopolitics continue to play out, we would expect to see continued volatility in regional equity markets. Valuations tend to fluctuate significantly in times of uncertainty and investors tend to stay out of equities. Any significant IPO activity we see in the short to medium term is therefore likely to be government sponsored".

Global IPO issuance experienced a slowdown in H1, 2016, compared to H1, 2015. Nonetheless, activity in the second quarter was higher than in the first quarter of 2016.

The GCC bond and Sukuk market demonstrated improved activity in Q2, 16 especially on the sovereign front as the market witnessed prominent issuances from regional governments demonstrating appetite for debt in the region still exists.

Q2, 16 marked one of the largest bond issuances in the region by the Government of Qatar amounting to $9bn, followed by the Government of Abu Dhabi amounting to $5bn, its first in seven years.

The Government of Qatar's $9bn bond was a $3.5bn issuance with an issue price of 98.924 percent of the principal amount, a $3.5bn issuance with an issue price of 98.963 percent of the amount, and $2bn issuance with an issue price of 97.606 percent of the principal amount. The Government of Abu Dhabi issued $5bn of bonds with a $2.5bn issuance with an issue price of 99.753 percent of the aggregate nominal amount and a $2.5bn with an issue price of 99.562 percent of the aggregate nominal amount.

On the sovereign front, the Central Bank of Bahrain was an active contributor in the region issuing three Sukuk Al Salam each worth $114m (BD 43m) and three short term leasing type Sukuk each worth $69m (BD26m).

© The Peninsula 2016

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