Regional markets have seen many false dawns announcing an expected rush of share sales, but perhaps the conditions are finally right for expectations to be realized.
GULF markets are braced for a wave of initial public offerings (IPOs). I wish I’d had a dollar for every time I have read that, or indeed written it. But — maybe, just maybe — this time the prospect of a rush to market by Gulf corporates will actually come to pass.
All the signals are set to green. Global equity markets are at all time highs, there is still no sign of an imminent leap in interest rates to get global bond markets soaring again, and asset valuations are at the kind of levels where owners must surely be tempted to cash in.
In the Gulf, equity markets have been prevented from joining in the global shares party by concerns about the economic effect of the oil price — still the region’s most important indicator. But neither have they collapsed. Equities have actually held value more than crude since the summer of 2014.
The comparatively low oil price is actually one of the reasons Gulf markets are seriously looking again at IPOs. Governments are looking to make up some of the fiscal deficit caused by low oil; private corporations are seeking to bridge the gap caused by lower oil-related activity. Privatizations and IPOs are good ways to do that.
Appetite for Gulf fixed-interest debt has been extremely healthy, with Saudi Arabia tapping the markets for $37 billion in the past year. Other issuers — most recently Abu Dhabi with a heavily oversubscribed $10 billion bond sale — have also gone to international debt markets.
But there is nothing like equity as an efficient way to raise cash. At the beginning of the year, it looked as though stock markets here were set for lift off, with 10 IPOs raising some $400 million, mainly in Saudi Arabia.
But this fell back in the second half, according to recent figures from accounting and consulting group PwC. From March to June, just three companies — all from Saudi Arabia — raised $171 million on public equity makers. The third quarter just ended, taking in the slow summer months, is unlikely to show any improvement.
But, if speculation and “people familiar with the situation” are to be believed, there are a number of big IPOs in the pipeline, with the UAE leading the way. At least five stock market listings are said to be in the offing, some of them in the multibillion-dollar range.
The most advanced is the planned listing of Emaar Development, the UAE real estate arm of the country’s best known developer, which brought you the world’s tallest building, the Burj Khalifa.
That could happen as a soon as next month, with a suggested market capitalization in the region of $6 billion and an IPO value of around $2 billion. The cash will be used mainly to pay dividends, with the government of Dubai a prime beneficiary from its 29 percent stake.
Emaar will be the largest Dubai IPO since 2014, when the same company sold its malls business to raise $1.58 billion, and could kick off a spurt of share activity from UAE companies. Abu Dhabi’s oil company Adnoc is considering an IPO for its retail arm, and could also be looking at its shipping business as a market candidate.
Others that could fall into the billion-dollar IPO category are the GEMS school business, Emirates Global Aluminium and conglomerate Senaat, though it is thought at least one of these is looking to London as a venue over any UAE market.
If the UAE gets off the mark first, where does this leave the huge program of IPOs scheduled in Saudi Arabia? Regional corporate financiers are pondering at the moment whether it is better to wait for the “big one” — the planned $100 billion IPO of Saudi Aramco — or to tap regional markets while they still have some cash ahead of that record breaking market debut.
It probably doesn’t matter, because Aramco is such a seismic event in world financial markets that it will generate its own global financial momentum.
More to the point for Saudi corporate advisers is whether they hold off the first of an estimated $200 billion of IPOs until after next year’s deliberations by the MSCI and the FTSE Russel organizations on upgrading the Kingdom to inclusion in their indices.
It is likely that by next summer the Tadawul will be included in both, which could be expected to trigger a big inflow of foreign investment funds. IPO candidates might consider it desirable to be in at the bottom before than rush.
Which will be the first Saudi company to test the IPO waters? It is hard to say, with literally hundreds lined up for sell-off. But policymakers will probably want to ensure the first gets away painlessly, so expect a solid, dependable utility to be high up the list. A power generator? A water desalination operator?
Those are exactly the kinds of businesses that will form the backbone of the Saudi privatization program, and will surely be among the first wave.
Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai