How Saudi Arabia boosted Gulf IPOs

GCC markets witnessed a surge in the number of floats during the first quarter of 2017 following the launch of a parallel equity market in Saudi Arabia as a new platform for initial public offerings, PwC's Capital Markets said.

The Saudi Stock Exchange (Tadawul) launched in February the 'Nomu-Parallel Market', an alternative equity market with lighter listing requirements compared to the main market. The launch of Nomu was marked by the listing of seven IPOs.

On the primary exchange front, the largest regional offering in quarter was by Investment Holding Group, which raised $138 million.

The number of offerings had significantly increased to 10 in the first quarter compared with one in the same period in 2016, but the total proceeds raised was 15 per cent lower, PwC said. However, the number and total proceeds raised from IPOs in the first quarter of 2017 sharply surged compared to the fourth quarter of 2016, which witnessed one IPO raising $37 million.

The low IPO values in the quarter were mainly due to the nature and characteristics of the Nomu market. A lower market capitalisation requirement compared to Tadawul opened the doors for the listing of small- to medium-sized enterprises.

"An interesting start to the year, with the launch of Tadawul's alternative equity market resulting in an influx of listings during the first three months of the year," said Steve Drake, PwC partner, and head of Capital Markets and Accounting Advisory Services team in the Middle East.

"As the region continues to adjust to a different oil price environment, we are starting to see signs of market recovery and activity which are positive indicators to what we hope to be an improved year for IPOs in the region. Furthermore, government initiatives across the region, including large scale privatisation activity is expected to boost capital markets activity in the next couple of years," said Drake.

Saudi Arabia has been the most active market in terms of number of offerings and proceeds raised during the quarter, with a total of eight IPOs (80 per cent) on the Tadawul, out of which seven were listed on the Nomu Parallel Market with a total of $157 million raised.

Across the globe, the first quarter was the scene for low volatility coupled with new record heights in certain equity markets. On the IPO front, activity in the first quarter was considerably higher than in the same 2016 quarter. IPO proceeds increased by 155 per cent compared to the same quarter last year. In total, 321 IPOs raised $37 billion compared to $14.5 billion via 146 IPOs in first quarter 2016.

The GCC bonds and sukuk market remained strong in the first quarter, and sovereign issuances continued to be popular amongst governments, which are benefiting from strong credit quality, with most of them holding investment-grade ratings.

The first quarter was marked by the government of Kuwait's bond issuance of $8 billion, the third-largest in the GCC, following Saudi Arabia's $17.5 billion last year. Oman also issued a $5 billion bond in the first quarter.

Nasdaq Dubai continued to prove popular amongst corporate sukuk issuers with notable issuances such as Dubai Islamic Bank issuing $1 billion sukuk and Islamic Development Bank $1.25 billion sukuk during the quarter.

"Bond and sukuk markets continued to be active in the first quarter of 2017, while most of the GCC countries managed to maintain a relatively competitive borrowing cost, benefiting largely from carrying investment grade credit ratings. The longer term impact of the interest rate hike by the US Federal Reserve remains to be seen," said Drake.

The GCC saw one of the weakest performances in the IPO segment during 2016. In terms of number of offerings, there were four IPOs, the smallest since 2010, raising a total of $781.7 million, the lowest since 2013, according to PwC.

In the last two years, the GCC IPO market was confronted by declining oil prices and heightened economic uncertainty. As a result, IPO trends witnessed in 2016 were the lowest registered in the last decade, as the total number of IPOs in the region fell to three issuances from six deals realised in 2015, according to Shailesh Dash, CEO of Al Masah Capital.

Source: Khaleej Times