Riding the IPO bullrun in UAE and Saudi Arabia

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Saudi Arabia and the UAE are expected to be the biggest contributors with a number of announced IPOs in the pipeline this year. About 12 Saudi and 9 UAE companies could potentially be floating and listing on the local bourses in 2018 as investors are back in the ring to capitalise on the growth potential of the market.

Analysts and market leaders said the region will take the honour to launch the mother of all IPOs - Saudi Aramco's $100 billion - this year. However, the progress on the IPO has been relatively slow mainly because of the decision on where to list it.

The big names which are expected to hit the markets this year are Abu Dhabi Ports, Emirates Global, Aramco, Senaat, Gems Education, property management unit of Dar Al Arkan, ACWA Power Saudi, Kuwait Stock Exchange and some power companies in Oman. Amongst these names, some are contemplating to list on foreign markets as well.

"We believe early 2018 would be an opportune time for the companies to go public as oil prices would continue to remain higher supported by output cuts. Later on, we expect shale producers to bounce back with higher production and drag the oil prices down," says Hettish Karmani, head of research at U-Capital.

"As per Opec report, Shale producers in the US have managed to lower their breakeven costs by 30-50 per cent in 2015-17, by improving technology and efficiency," Karmani added.

IPO market activity in GCC gained momentum last year and it was buoyed by a general improvement in market conditions and investor confidence in the region. The number of IPOs more than tripled last year when compared to corresponding period of 2016 as 18 offerings were launched in 2017 compared to only five in 2016.

Furthermore, proceeds raised during 2017 were a whopping 252 per cent higher compared to 2016 in spite of some low-value IPOs listed on Saudi's Nomu parallel market in 2017.

Akber Naqvi, executive director and head of asset management at Al Masah Capital, says Saudi Arabia and Egypt were most aggressive and they got good support from their regulatory authorities.

While in UAE, high-profile names tried to time the market and found the right opportunity to launch IPOs.

"This coming year, we could see a similar pattern with Saudi and Egypt looking to attract more investment, especially foreign, and hence keep the pipeline of IPOs moving along," Naqvi said.

"In the UAE, prospective companies looking to IPO will look at the market conditions; if regional markets are on an upswing and sentiment is positive then we could see a rush of IPOs. However, as happened a few years ago, if markets falter and sentiment swoons then people will move to the sidelines and wait for another opportunity," he said.

Mohamed Fahmy, co-head Investment Banking, EFG Herms, said there is a lot of appetite for the UAE IPOs.

He noted that there would be more high-profile deals in the UAE.

"The problem with the UAE capital markets is that the people only want $1 billion offerings. We need to see more of $200-300 million offerings and more from private sector. Unlike other GCC markets, international investors are already very well comfortable with the UAE jurisdiction.

"Appetite is very much there for the UAE issuers. A $250-$300 million IPO will be very successful in the UAE because a lot of companies need capital for growth for their expansions. It is a good time for companies because the funding inflows into emerging markets are at a record high from beginning of the year," Fahmy said.

Commenting on the Aramco IPO, he pointed out the Saudi giant is an elephant and now no body knows what is happening inside.

"No one knows the structure of IPO. There are stories of IPO coming in late this year and then we are also hearing of first half of 2019. Even if Aramco IPO comes with $20 billion, it is still massive and will open Saudi market for international investors," he added.