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Gulf investors looking to buy new company stock have had a tough time of it these past six months, as the sub-prime crisis and ensuing credit crunch have derailed many planned share sales across the region. However, that might be about to change as companies are slowly being tempted back to the IPO market. An IPO represents the first sale of stock by a company to the public.
“Changes in regulations are making it easier for companies to go public and investors are becoming more educated and confident when looking for value,” says Sanjay Vig, the managing director of boutique investment bank Alpen Capital. “Now that the markets are more stable, investor confidence has definitely returned.”
Vig’s optimistic outlook is echoed in a recent report from Abu Dhabi-based investment bank Gulf Capital, which predicts at least 120 IPOs are planned in the Gulf Cooperation Council (GCC) by the end of 2010, as more companies look to raise capital through equity markets.
Record oil revenues are boosting liquidity in Gulf economies, encouraging companies to consider listing shares despite ongoing turbulence in global equity markets. Companies in the region raised around $10.5 billion [USD] from 33 IPOs in 2007, and according to Gulf Capital’s research, the total value of IPOs over the next 21 months will top $24 billion.
Investors will no doubt be hoping the new stock will perform better than the Dubai International Financial Exchange-listed DP World, which has dropped about 29 percent from its IPO price of $1.30 per share. Analysts believe that DP World’s debut on the exchange came at a difficult time when local policymakers were seriously debating a revaluation of the dollar-dirham peg. Investors recognized this as a discouraging move that would decrease the share value for the dollar denominated security.
Confidence in the Gulf’s IPO market has also been tested over the last six months as some planned shares sales have either been delayed or abandoned completely. Earlier this year, Nanodynamics, Inc. should have been the first U.S. listing on the DIFX. The company hoped to raise about $100 million while using the DIFX as a springboard to establish a global presence. However, the share sale was pulled without explanation.
Saudi-based Aujan Industries and Abu Dhabi-based Al Qudra Holdings have also delayed planned share sales this year. Aujan, the Middle East producer of popular beverages such as Vimto, chose to postpone planned share sales due to the volatility in the markets. The family-owned business had planned to raise over US$200m through the sale of a 30 percent equity stake in the firm. Meanwhile, Al Qudra had hoped to sell as much as 55 percent of itself to the public before revising that to about 30 percent, after a new companies law was passed in the UAE reducing the minimum stake to issue an IPO and list on the DIFX, to 25 percent. Such delays, it is now hoped, should become a thing of the past as confidence floods back into the market.
“Legal reforms mean it is definitely much easier to list today in any of the GCC or MENA markets than it was four years ago,” says Ammar Alkudairy, managing director of Saudi Arabia-based private equity firm Amwal Alkhaleej. “The legal regime is much more conducive, there’s more liquidity and the number of companies eligible to IPO has jumped as well.”
The Saudi market provides a lucrative platform to list. Earlier this month, Alinma Bank launched the kingdom’s largest ever IPO through the sale of 70 percent of its new capital. The shares are only available to Saudi nationals who are required to purchase a minimum of 50 shares, and the firm is looking to raise $2.8 billion through the offering.
Back in the UAE, the Arab world’s largest airline, Emirates, is known to be considering a share sale. After a few uncertain years, the response to such a listing should be enough to indicate whether the Gulf’s IPO market has finally got its wings back.