Corporate Financing Analysis - The Long-Awaited Return Of GCC IPOs - 11 SEPT 2017


Coming from a low base for activity following a difficult couple of years in the Middle East - due to the dramatic slump in crude oil prices, various political shockwaves, and a slowdown in economic growth - conditions for an uptick in IPO issuance among the Gulf Cooperation Council (GCC) economies are looking increasingly fertile once more. In a world where the GCC states of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates (UAE) are adjusting to a new oil prices environment, we highlight that there is a strengthening cocktail of tailwinds which we believe will catalyse an uptick in first time share sales once more across the region. These tailwinds include: firstly, the spike in privatisations as GCC governments look to boost their struggling state-owned enterprises (SOEs) which have seen their funding avenues dry up since the slump in oil prices began back in H214; secondly, a steady - albeit slow - recovery in crude oil prices is forecasted; and thirdly, the broader Emerging Market growth story has seen money return into funds focused on the region once more, making local exchanges more liquid and tapping into the demand for stocks that still exists among the equity capital market (ecm) investment community. In sum, there is plenty of cause of optimism in the GCC IPO arena at present.

More Deals, But Smaller In Size

GCC IPO activity is on its way back, but deals remain small in size as issuers test out the IPO climate once more. Indeed, the first half of 2017 enjoyed a marked increase from H116, with the volume of successful deals climbing to 13, compared with just three recorded during the first six months of last year. We highlight that within this uptick in activity, Q117 is responsible for the lion's share of deals (10, worth a combined USD400mn), while activity tailed off once more in the second quarter with just three successful first-time share sales tapping ecm investors for a combined USD171mn. This second-quarter disappointment - after a promising first quarter - is something that we attribute to the political shockwaves caused by the diplomatic crisis in the Gulf region and the resulting restrictions on cross-border movements between Qatar and Saudi Arabia, the UAE, Bahrain, and Egypt, which will have unsettled potential issuers and ecm investors alike. Interestingly, however, all three of the IPO deals completed during Q217 took place in Saudi Arabia, on either the primary Tadawul Market or the new Parallel Market for high-growth companies - an alternative equity market aimed at smaller cap companies and which also provides the possibility for companies to transition to the main market after a period of time. Interestingly, the launch of Parallel Market back in Q117 was marked by the successful listing of as many as seven IPOs. Despite the Kingdom's growing importance to the GCC IPO space, we highlight that the title of hosting the largest float in the y-t-d period lies with Qatar, where the local stock exchange played host to a USD138mn, first-quarter deal from Investment Holding Group (IHG), which operates various contracting businesses. The firm sold 49.8mn shares in what represented the Qatar Stock Exchange's (QSE) first successful listing since 2014.

On Its Way Back
Quarterly GCC IPO Activity by Deal Value, USDmn
Source: PwC

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