Surge in IPO floats in the Middle East during Q1

Business Reporter -

MUSCAT, JULY 1  -

A positive start to the year as the first quarter of 2017 saw a record high in number of IPOs (10) issued during one quarter in the Gulf Cooperation Council (GCC) within the past five years.

The Saudi Stock Exchange (Tadawul) launched the first parallel market (NOMU) in the GCC. NOMU is an alternative equity market to the Tadawul, aimed at smaller cap companies although provides the possibility for companies to transition to the main market after a period of time. The launch of NOMU was marked by the successful listing of 7 IPOs.

Steve Drake, (pictured) Head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East region said: “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”.

Meanwhile on the primary exchange front, the first and largest regional offering in Q1 2017 was by the Investment Holding Group (IHG), which operates various contracting businesses. The company listed on the Qatar Stock Exchange (QSE) and offered 49.8 million shares, raising proceeds of $138 million. IHG is the first Qatari IPO on QSE since 2014.

The second offering was by Al Jazira Mawten REIT fund on Tadawul offering 11.8 million shares and raising $31 million. The fund invests in developing real estate to generate rental income. The third and final listing was by ENBD REIT fund on Nasdaq Dubai offering 94.6 million shares and raising proceeds of $105 million. The fund invests in a diversified portfolio of Sharia-compliant real estate assets in the UAE. The IPO is the first to list on a Dubai exchange since

March 2015.

Period to period performance

In terms of IPO performance in Q1 2017 compared to the same period in the prior year, the number of offerings has significantly increased, with 10 IPOs in Q1 2017 compared to 1 in Q1 2016; however the total proceeds raised in Q1 2017 was 15 per cent lower as compared to Q1 2016. The low offering values in this quarter mainly relates to the nature and characteristics of the NUMO market, one of which is a lower market capitalisation requirement compared to Tadawul, opening the doors for the listing of small to medium size enterprises. Furthermore, the number and total proceeds raised from IPOs in Q1 2017 sharply increased compared to Q4 2016, which witnessed 1 IPO raising $37 million.

The Kingdom of Saudi Arabia (KSA) has been the most active market in terms of number of offerings and proceeds raised during the quarter, with a total of 8 IPOs (80 per cent) on Tadawul, out of which 7 were listed on the NOMU Parallel Market with a total of $157 million raised.

Steve Drake, PwC Partner and Head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East said: “An interesting start to the year, with the launch of Tadawul’s alternative equity market resulting in an influx of listings during the first 3 months of the year. 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.”

Global IPOs

Q1 2017 was the scene for low volatility coupled with new record heights in certain equity markets. While the US Federal Reserve lifted rates for a third time since the Financial Crisis, the European Central Bank (ECB) left its monetary easing measures unchanged. In the political spectrum, a vote in the Netherlands did not translate into populism’s next milestone. Nonetheless, the French presidential election and the official start of Brexit procedures are weighing on European equity markets, while upcoming elections in Germany and potentially Italy could reform the EU. Finally, concerns are mounting that Trump will not be able to come through on the policies he promised which have driven equity markets higher since November 2016.

On the IPO front, activity in the first quarter was considerably higher than in Q1 2016. 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 Q1 2016 and $42.5 billion via 253 IPOs in Q1 2015.

Unlike previous quarters, the Americas region overtook Asia-Pacific in terms of IPO proceeds. The region accounted for 42 per cent ($15.8 billion) of the money raised globally via IPOs, but only 13 per cent (41) of the number of IPOs. This was the result of a few jumbo transactions, such as the IPO of Snapchat’s parent company, Snap. The Asia-Pacific region ranks behind the Americas in terms of IPO proceeds, accounting for 41 per cent ($15.2 billion) of the money raised and a stunning 71 per cent (228) of the number of IPOs. Thus, the average transactions in the Americas were almost six times larger than in Asia-Pacific. Finally, EMEA comes in last in terms of proceeds (17 per cent or $6.1 billion) and second in terms of the number of IPOs (16 per cent or 52 deals).

Bond and Sukuk Markets

The GCC Bonds and Sukuk market remained strong in Q1 2017, sovereign issuances continued to be popular amongst governments, which are benefiting from strong credit quality, with most of them holding investment grade ratings.

Q1 2017 was marked by the government of Kuwait bond issuance of $8 billion, the third-largest in the GCC, following Saudi Arabia’s record $17.5 billion and Qatar’s $9 billion sales last year. The Sultanate of Oman also issued a $5 billion bond this quarter. The Government of Kuwait raised $8 billion via a $3.5 billion 5 year note and $4.5 billion 10 year note yielding 2.8 per cent and 3.6 per cent, respectively. The Sultanate of Oman raised $5 billion via a $1 billion 5 year note at 190 basis points over mid-swaps and $2 billion 10 year note at 300 bps over mid-swaps and $2 billion 30 years note at 387.5 bps over mid-swaps.

In corporate bonds issuances, National Bank of Abu Dhabi issued its second Formosa bond (USD bond listed in Taiwan), structuring it as a multi-callable zero coupon bond for an amount of US$885 million with a maturity of 30 years.

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 Q1 2017.

On the sovereign front, the Central Bank of Bahrain was an active contributor in the region issuing three Sukuk Al Salam each worth $114 million (BD43 million) and three short term leasing type Sukuk each worth $69 million (BD26 million).