Saudi Arabia leads MENA IPO activity in Q3, raises $220.6mln

RIYADH — The MENA region raised $349.9m through four IPOs, in Q3 2018, according to the latest EY MENA IPO Eye report. Compared to Q3 2017, IPO value saw an increase year-on-year by 21.9%, while activity declined by 33.3%.

Phil Gandier, MENA Transactions Leader, EY, said:

“In light of fluctuating oil prices and headwinds in the economy, IPO activity in the MENA region has been slow from Q1 to Q3 2018. However it is positive to see that IPO value increased year-on-year in Q3, especially when we’ve seen several entities across MENA delaying their plans for IPOs in 2018 due to various factors including (but not limited to) regulatory and global trade concerns and uncertain market conditions in a rising interest rate environment.”

According to the report, Saudi Arabia led the MENA IPO activity in Q3 with the IPO of Leejam Sports Company on the Saudi Stock Exchange, which raised $220.6m, making it the biggest IPO in the third quarter. In the previous quarter, four companies went public, three of which were REIT listings on the Tadawul.

Additionally, in the GCC region, Oman’s Muscat Securities Market (MSM) had a single IPO listing for Dhofar Generating Company in the power and utilities sector raising $52.0m.

Gregory Hughes, MENA IPO Leader, EY, said: “While IPO performance has been slow this year, regulatory updates and inclusions in global indices have been positive for the GCC IPO market. FTSE Russell has issued a statement that it plans to include Tadawul as a secondary emerging market index in 2019. This follows the September 2018 announcement where MSCI signed an agreement with Tadawul to jointly launch a tradable index in Q4 2018, which is intended to function as a platform for investment instruments, covering exchange-traded fund (ETFs).”

“Looking to Oman, increased clarity in regulatory processes in the power and water sectors has created transparent competition in the sectors, encouraging developers and investors. With as many as six power generation and water desalination companies planning IPOs within three years, Oman’s IPO pipeline looks very healthy,” Greg added.

The Abu Dhabi Securities Exchange has announced plans to roll out futures trading in 2019 to boost investments. The stock exchange is connecting with seven companies that have IPOs on their agenda.

There have also been talks of MSCI reclassifying the Kuwait Stock Exchange as an emerging market in 2019. The stock exchange is currently a frontier market.

In the wider MENA region, Egypt and Tunisia recorded one deal each. The IPO of Cairo for Investment & Real Estate Development Company raised $69.7m. The IPO program laid out by the Egyptian Government, which plans to list public sector companies on its stock exchange, has strengthened the prospects of future IPOs in the country that would promote local and foreign capital inflows. The Government also has plans to introduce an IPO program offering minority stakes of state owned and private companies in various sectors, in the next three to five years.

Further, in North Africa, the Tunis Stock Exchange saw the IPO of Tunisie Valeurs in Q3 2018 raising $7.6m, following a yearlong gap of no activity. The improved classification of Tunisia by the FTSE Russell and MSCI, along with the World Federation of Exchanges (WFE) member status, received in October 2018, has reinforced the attraction of Tunisia for foreign investment.

Globally, IPO activity saw a significant slowdown in Q3 2018, with 302 IPOs raising $47.1b, marking a decrease of 15% and 2% respectively, compared to Q2 2018. Current market and investor confidence fluctuations are causing companies to delay or pull out of planned IPOs in Q4 2018 despite the recovery in oil prices. Reasons for this could be current market and global trade uncertainties.

“Globally, the third quarter has been a relatively quieter period for IPO activity driven by geopolitical tensions, trade issues between the US and China and the looming exit of the UK from the European Union, all of which have dampened investor confidence in the short term,” Phil noted.