Dubai Financial Market welcomes its first REIT IPO in a year of historic regulatory changes for the UAE

• Four companies were also listed to the Abu Dhabi Securities Exchange
• Sweeping initiatives, changes to foreign ownership and listing requirements in UAE are expected to bolster IPO activity in the coming years

Dubai: According to the EY MENA IPO Eye Q4 2020 report, the MENA region saw nine IPOs raise proceeds of US$1.86 billion, a fall of 40% in total issuances and 94% in total proceeds when compared with 2019. Out of the nine issuances, six were in the real estate sector, of which two were real estate investment trusts (REITs), with the remaining in the health care, consumer staples and insurance sectors.

Despite a subdued annual picture, Q4 2020 rebounded after a quiet Q2 and one IPO in Q3, with four IPOs in the MENA region raising US$925 million in total. Although the number of IPOs decreased by 33% and proceeds were down 97% compared with the same quarter in 2019, Q4 did have the highest proceeds of 2020.

Globally, IPO numbers continued to pick up with 1,363 IPOs taking place in 2020, a 19% rise when compared with the previous year. Additionally, proceeds increased by 29% from 2019, rising to US$268 billion – the highest proceeds since 2010’s record of US$290.2 billion raised via 1,361 IPOs.

Matthew Benson, EY MENA Strategy and Transactions Leader, says:

“A decline in economic growth and significant disruption across various industries caused by the COVID-19 pandemic, together with a decrease in demand for oil, had a considerable impact on MENA stock performances in 2020. Markets were also impacted at a global level. Market volatility in the first half of the year was higher than at any time since the global financial crisis, although it quickly subsided, and the latter half of the year presented some strong IPO market performances. As 2021 begins, we believe that continued fiscal stimulus measures, an abundance of liquidity and growing confidence in COVID-19 vaccination programs will sustain positive IPO momentum.”

Despite a drop of nearly 30% earlier in 2020, the Tadawul recovered to end 2020 with a positive index return of 3.6%, which was aided by the recovery in crude oil prices. The Egyptian Exchange (EGX) saw the biggest decline among the observed indices, having lost 22.3%. The Abu Dhabi Securities Exchange (ADX) ended the year relatively flat, while the Dubai Financial Market (DFM) and Boursa Kuwait indices both fell by 10% and 13% respectively during the same period. Equity markets in the MENA region experienced high volatility and average daily trading values increased significantly across the main exchanges.

DFM welcomes its first REIT IPO, as several new initiatives are introduced in the UAE

In Abu Dhabi, the companies Saweed Holding, Easy Lease, Palm Sports and Zee Stores were listed on the Abu Dhabi Securities Exchange (ADX) Second Market for Private Joint Stock Companies in Q4 2020. ADQ, the full shareholder of the ADX, also launched Q Market Makers (QMM) during Q4 2020 – which is expected to access the funding allocated to the Abu Dhabi Economic Stimulus Package to enhance market liquidity on the ADX.

During 2020, Al Mal Capital REIT raised US$95.3 million and officially listed on the Dubai Financial Market (DFM) on 18 January 2021, the United Arab Emirate’s (UAE) first IPO in years. The issuance was the first REIT listing on the exchange and brought the total number of REIT listings in the UAE to three listings; with Emirates REIT and ENBD REIT being listed on Nasdaq Dubai. At the start of Q4 2020, the DFM launched their equity derivatives platform for single stock futures (SSF). Nasdaq Dubai also announced its Growth Market for SMEs during the quarter, with the launch expected in early 2021. The creation of the Growth Market has been facilitated by developments in the regulatory framework supporting the exchange following consultation with market participants.

Several new initiatives were also launched in the UAE in 2020 with the aim of bolstering IPO activity in the years ahead. Key among these are the amendments to foreign ownership and listing requirements. These changes significantly alter regulations concerning commercial companies, removing the historical requirement to have 51% UAE ownership: onshore companies may now be 100% foreign-owned. The regulation changes also extend to IPO activity, and mergers and acquisitions. The founders of private joint-stock companies may now sell up to 70% of their capital by way of a public offering, up from 30% previously. This upper limit, however, may be exceeded with the consent of the UAE’s Securities and Commodities Authority.

Alison Hubbard, MENA Law Leader, EY Law LLP, says:

“The 2020 amendments to the Companies Law bode well for the overall development of capital markets in the UAE. Increased flexibility in foreign ownership, changes to the nationality requirements of board members and the increase in the proportion of share capital that owners may now sell, to name a few, are expected to lead to an increase in the number of IPO candidates in the Emirates.”

Saudi Arabia continues to lead the IPO market

Saudi Arabia continued to have the most active IPO market in the MENA region in terms of both issuances and proceeds. Tadawul was MENA’s top listing venue for the year with four listings totaling US$1.45 billion, which represented 78% of the total amount raised by MENA IPO candidates in 2020.

The fourth quarter in 2020 was the strongest quarter for IPOs based on proceeds, primarily due to the listing of BinDawood Holding (US$584 million), which was the second-largest listing of the year after Dr. Sulaiman Al-Habib Medical Services Group Company (US$701 million) listed in Q1 2020. Both listings were on Tadawul’s main market.

Gregory Hughes, EY MENA IPO and Transaction Diligence Leader, concludes:

“Although MENA IPO activity remained relatively quiet in 2020, several regulators across the region announced positive regulatory changes during the year that bode well for future and existing public companies. As we start 2021, there are reasons for renewed optimism, and we see a strong IPO pipeline in key MENA markets and expect activity to pick up gradually during the new year. We have also seen some interest in mergers with US-listed Special Purpose Acquisition Companies (SPACs) in recent months following some limited activity in this area in the last two years from the region.”

-Ends-

Sarah Afifi                                                                                 Ewan Abbasi
MENA Public Relations                                                              MENA Public Relations
+971 4 332 4000                                                                       +971 4 332 4000
sarah.afifi@ae.ey.com                                                                 ewan.abbasi@ae.ey.com  

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