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|11 January, 2019

Oil, secondary markets to dictate GCC IPOs in 2019

Corporate IPOs led primary markets in 2018, contributing 56% to number of issuances and 62% of capital raised

Image used for illustrative purpose. A nodding donkey rig pumps crude up from the ground on an oil field.

Image used for illustrative purpose. A nodding donkey rig pumps crude up from the ground on an oil field.

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Initial public offering (IPO) activity slowed down in the GCC in 2018 compared to the previous year both in terms of volume and value, and companies will largely look to oil prices and secondary equity markets before going public in 2019, an analyst says.

The total number of corporate IPOs and Reit (real estate investment trust) IPOs declined to 18 issuances last year compared to 28 in 2017, raising $3.3 billion against $2.7 billion, respectively, Kamco Research said in a note.

Unlike in 2017 where Reits dominated the GCC IPO market, corporate IPOs led primary markets in 2018, contributing 56 per cent to the number of issuances and 62 per cent of capital raised.

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"Although the IPO market in the region has picked up in 2017 and 2018, corporate issuers continue to look for reduced volatility in oil prices, and a stable near term outlook for secondary markets within the region, to take to the primary market," said Faisal Hasan, head of investment research at Kamco.

In the GCC, Saudi Arabia continued to provide leadership for primary markets in 2018, as the kingdom led in terms of the number of IPOs and capital raised. Saudi Arabia contributed 11 IPOs - including Reit IPOs - and accounted for $1.33 billion (Dh4.88 billion) worth of capital proceeds in 2018.

Although the UAE did not witness corporate IPOs on any of their exchanges, Dubai-based companies raised capital through IPOs on international exchanges. Shelf Drilling, the Dubai-based contractor and the largest shallow water driller globally, raised over $225 million from the Oslo Stock Exchange.onstruction firm RA International Group, another Dubai-based company, garnered $25 million from its IPO on London's Alternative Investment Market. During the year however, the Dubai Financial Market witnessed two dual listings from Egypt's Naeem Holding and Bahrain's Ithmaar Holding.

Hasan believes that the outlook for IPO markets in the GCC in 2019 will continue to depend on secondary equity markets and the stability of oil prices, even as GCC governments continue to propel the non-oil economy by largely maintaining their budget spending.

"Issuers are likely to watch the development of secondary markets early on in 2019, and also ascertain whether taking the debt market route for capital needs would be viable. Reit IPO volumes are likely to come down over structural issues affecting fundamental demand for real estate, and declining spreads between returns of Reits and deposit rates for safer time deposits going forward," said Hasan.

Nevertheless, Kamco believes that companies from the GCC with unique business models, industry classification and ability to show capital efficiency should continue to garner increased interest from both the local and international investors looking at IPO participation.

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