“GOVERNMENT SHOULD PUSH FOR MORE IPOS”
The government has a role to play in supporting more Initial Public Offerings (IPOs) in Qatar, according to Salah Shamma, Head of Investment – MENA Equities at Franklin Templeton Investments ME.
Qatar is consistently viewed as a major destination in which to do business. However, the associated growth that accompanies such demand is not reflected in the country's stock exchange, as evidenced by the fact that there's only been one new listing reported in the past five years.
The government has taken note of this and has been proactively trying to encourage private companies to list. That being said, not many IPOs have come in the market, which is still dominated by the government selling down equity stakes in state assets.
Mesaieed Petrochemical Holding Company Limited (MPHCL), part of Qatar Petroleum, is the only listed company which has come out with an IPO in January 2014 and despite a significant positive response, interest remains lacking from others.
“Though some positive steps were taken by the regulators the big challenge is for the government to motivate companies to go public. Even the MPHCL issue was open only to Qatari nationals and included a free shares option if individuals held onto the stock over a period of time,” Salah Shamma, Head of Investment – MENA Equities at Franklin Templeton Investments ME points out.
Such preferential treatment has the potential to create differing views on a stock depending on whether the investor is from Qatar or the international market place. “The regulator should ensure that everyone who participates is doing so within the same framework and this should play a positive role in ensuring that the market is as open as possible for international investors. As the market continues to develop, there will be a requirement for more liquidity and the regulator shouldn't rely on local capital to bridge that gap,” he says.
According to Shamma, equity markets provide a vital forum for corporations to access long-term capital. This is particularly important in the aftermath of the financial crisis when overall liquidity became less available. The IPO market in Qatar has, so far, typically been used as a platform for wealth transfer rather than a primary source of financing. As such, the regulator has a role to promote the equity markets as an additional avenue for corporations to diversify their sources of funding.
International investors will not shy away as Qatar has an appealing economy and is a destination for many. The country is projected to grow by more than 6% over the next five years, bracketing it in the ranks of the fastest-growing economies worldwide. “This is a resource-rich country with large sovereign reserves driving substantial non-oil sector growth and supported by a strong population growth. Additionally the currency is dollar-pegged, so who would not like to invest in the country?” he asks.
Shamma also suggests that there is a real opportunity for large Qatari family-owned businesses to look into listing on the equity market. It is estimated that family-owned businesses control close to 80% of the country's non-oil wealth. That said, one of the challenges remains the minimum listing amounts required for companies going public. Current guidelines suggest that this should be at least 40%, but for many this may represent a loss of too much control over proceedings.
“In an ideal world, such companies are more comfortable with 20% to 25% and the government should perhaps recognise this to promote a more active IPO market.”
Shamma points out that the UAE has also been facing similar issues with regards to family-owned businesses and large companies who were also reluctant to cede 55% of their companies in an IPO. However, in an effort to address the issue, the UAE government has issued a new company law which reduces the minimum free float to go public to 30%. The new law, issued last month, is expected to encourage financial markets and new IPO activity on the UAE markets.
With contributions from the nonoil sector to the GDP growing fast the government should amend existing laws so that there will be more participation from the family-owned businesses and the investors will have access to retail, hospitality and healthcare and other sectors, all of which show promise in the market given ongoing development plans.
Qatar has already taken steps to increase Foreign Ownership Limits (FOLs), which in turn are expected to increase its weighting in the Morgan Stanley Capital International (MSCI) Emerging Markets index. Since this Index covers over 800 securities in 23 markets worth more than $500 billion (QR182 billion), it will attract significant liquidity which, in turn, reduces volatility in the market.
Qatar, which is on the watch list of the Financial Times Stock Exchange (FTSE) 100 Group, the indexing unit of the London
The government has a role to play in supporting more Initial Public Offerings (IPOs) in Qatar, according to Salah Shamma, Head of Investment – MENA Equity at Franklin Templeton Investments.