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| 23 June, 2018

Spotlight on Aramco: UAE, Saudi Arabia set to spur IPO boom

The upcoming IPO boom would lead to the listing of government and quasi-government enterprises

General view of the Natural Gas Liquids (NGL) facility in Saudi Aramco's Shaybah oilfield at the Empty Quarter in Saudi Arabia May 22, 2018.

General view of the Natural Gas Liquids (NGL) facility in Saudi Aramco's Shaybah oilfield at the Empty Quarter in Saudi Arabia May 22, 2018.

Reuters/Ahmed Jadallah

The initial public offering (IPO) activity in the Middle East is poised to pick up in the second half of 2018 after a slow start in the first half as the result of a privatisation drive spearheaded by Saudi Arabia and the UAE, analysts said.

"While the number of IPO transactions during the first half of this year was lower than expected, we still believe that appetite is there, particularly in Saudi Arabia and the UAE," said Mohammad AlRasheed, a capital markets/M&A partner at Baker McKenzie's associated firm in Saudi Arabia.

"The IPO pipeline includes a number of transactions that aim to hit the market later this year, although it is likely that some of these will spill into the first quarter of 2019," said AlRasheed.

He said the upcoming IPO boom would lead to the listing of government and quasi-government enterprises in the region.

Stock market analysts said the GCC in particular is set to witness an unprecedented boom in IPOs in 2018 with the UAE and Saudi Arabia leading the way as nearly 30 companies are poised to go public.

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"In the UAE, as many as nine companies from industrial, infrastructure, education and real estate sectors are likely to raise up to Dh33 billion from IPOs through listing in global as well as local equity markets, depending on their valuations," said Vijay Valecha, chief market analyst, Century Financial Brokers.

Emirates Global Aluminium is expected to come out with an IPO estimated at Dh11 billion while Abu Dhabi Ports is targeting around Dh3.67 billion. Gems Education, which was planning to raise Dh5.5 billion through a London IPO, has temporarily put the issue on hold. "If all of these companies go through, 2018 could be a landmark year for UAE financial markets," Valecha said.

Gregory Hughes, Mena IPO Leader at EY, said the UAE looks particularly strong in terms of announced and potential IPOs.

Steve Drake, head of PwC's Capital Markets and Accounting Advisory Services in the Middle East, said the outlook for 2018 looks positive, with a strong diversified IPO pipeline, subject to volatility arising from geopolitical factors. "The spotlight will remain on Aramco's IPO in 2018, which if it comes to market, will be the largest global IPO ever."

"Furthermore, we are seeing renewed appetite for cross-border IPOs and an increase in confidence from institutional investors in GCC equity markets," said Drake.

Kuwait Financial House, or Markaz, said while stock markets are witnessing heightened volatility, there is good news in the form of renewed interest for IPOs in the GCC.

In the first half, domestic and cross-border IPO activity in the Middle East has gone off to a slow start, with capital raising amounting to only $263 million from six IPOs, compared to $872 million from 13 deals in the same 2017 period, a Baker McKenzie report said.

In 2017, the total number of listings by Middle Eastern issuers more than tripled, buoyed by a general improvement in market conditions and investor confidence in the region.

Across the globe, political concerns and market volatility once again dampened the IPO market in the first half of 2018, mainly as a result of lower capital raising in Asia Pacific and EMEA, the McKenzie report said. A total of 676 listings have taken place so far in 2018 first half, down 19 per cent on the comparable period last year. The value of listings globally has also fallen 15 per cent to $90 billion, with capital raising in the Middle East falling 70 per cent compared to the same period last year.

"While domestic issuers are adopting a 'wait-and-see' approach in light of various political issues, fears over globalisation going backwards and economic nationalism haven't reached the cross-border market," said Koen Vanhaerents, global head of capital markets at Baker McKenzie.

Worries around geopolitics - in particular US President Donald Trump's protectionist policies, as well as a lack of progress around Brexit negotiations and prolonged political uncertainty in Italy - weighed on investors' minds and dented the headline numbers. Market volatility peaked early in the year to levels not seen in 2017, adding to the challenge of finding the right time to launch an IPO, said the report.

However, cross-border IPOs significantly outperformed. A surge in capital-raising in North America's deep capital markets led the charge, with foreign issuers seemingly perfectly happy to list in the US despite protectionist rhetoric and just under half of the billion dollar IPOs successfully launched in the US.
 

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