Saudi stock market ‘dominant’ player in Gulf IPOs

Region saw four share offerings in third quarter as investor confidence improves, says PwC

The exchange attracted two of the region’s four IPOs during the third quarter of this year.

The Tadawul “remained the dominant exchange” in the Gulf Cooperation Council (GCC) in terms of IPO proceeds, PwC said.

The two IPOs on the market raised a total of $110 million, making up 79 percent of total Gulf IPO proceeds in the third quarter. That included an offering by Zahrat Al-Waha For Trading, which raised $61.2 million in what was the region’s largest IPO during the quarter.

Steve Drake, head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East, said: “GCC IPO market activity this quarter gained momentum representing a general improvement in market conditions and investor confidence in the region.

“We are seeing more and more companies engaging in IPO readiness activities, preparing themselves and getting ready for the right window. We expect to see companies go to market during 2018.”

The Muscat Securities Market witnessed its first IPOs since June 2015 during the third quarter of this year. Two IPOs on the exchange raised $30 million, comprising 21 percent of regional IPO proceeds over the period.

This year has so far seen a “significant increase” in the number of Gulf IPOs, with 17 offerings compared to four in 2016, PwC said.

But the actual value of GCC listings saw a slight decline on last year and the previous quarter. Proceeds raised from third-quarter IPOs amounted to $140 million, compared to $171 million in the second quarter.

The global IPO market saw an uptick in the third quarter, with total proceeds of $47.1 billion via 329 IPOs, a rise of 23 percent and 37 percent respectively compared to the same time last year.

“Low volatility coupled with high equity valuations created a favorable listing environment.

“The only significant source of risk emanated from the Korean peninsula. As political uncertainties in Europe have largely disappeared and tax reform is on the agenda in the US, the typically strong fourth quarter looks promising,” PwC said.

Snap remains the largest IPO of the year, with proceeds of nearly $4 billion.

In the bond and sukuk markets, investor appetite for GCC sovereign issuances remained “relatively high,” PwC said, with Saudi Arabia and Bahrain among the key issuers.

The Kingdom issued sukuk worth SR37 billion ($9.8 billion) in the third quarter of this year, PwC said. The program included three tranches: A SR16.525 billion five-year tranche, a SR14.475 billion seven-year tranche and a SR6 billion 10-year tranche.

Bahrain raised a total of $3 billion, via a $2.150 billion international bond and an $850 international sukuk.

Drake said: “GCC governments continue to tap into both domestic and international debt markets, bolstering their budgets amid prolonged low oil prices.

“We are set for a busy end of the year, with both KSA and UAE governments expected to tap the debt market with their international bond sale of $12.5 billion and $10 billion, respectively.”

THE word “synergy” is much overused in the business world, but if ever there was a textbook example of the principle it is the relationship between Emirates and the European aircraft manufacturer Airbus. Last week, amid much fanfare, the two partners held a top-level unveiling in Germany of the 100th A380 plane bought by the Dubai airline. From zero in 2008 to 100 now, at a list price in the region of $400 million each, Emirates has made massive investments in the plane.

The huge aircraft, which can carry more than 500 passengers, has helped make Emirates one of the biggest airlines in the world and Dubai the busiest airport for international passengers.

The A380 can even be seen as an instrument of globalization — another much overused word — opening up destinations to transport passengers on routes that would have been unimaginable a little over a decade ago. More than any other single factor, the “south-south” trade corridor linking eastern Asia with Africa and Latin America is a product of Emirates’ A380 routes.

For Airbus, the benefits have been equally striking. Quite simply, the A380 — which required massive capital investment by the pan-European consortium that owns the company — would probably have been ditched by now had it not been for Emirates. The European manufacturer would be struggling even harder to keep up with its great American rival Boeing without Emirates’ business.

Roughly half of the A380s in the world carry the Emirates livery, and that number could rise significantly in the next few weeks if new orders — hinted at during the ceremony in Hamburg — are confirmed at next week’s Dubai Airshow.

Emirates’ spectacular growth would not have been possible without the A380; the plane would probably not still be in production — in Toulouse in France and the Finkenwerder plant outside Hamburg — without Emirates’ massive order book.

But now analysts are questioning whether the European-Emirati symbiosis in aviation has had its day. There have been big shifts in global aviation patterns, and a new regard for environmental standards, which some believe are making the A380 less likely to be the first choice for airlines, including Emirates, in the future.

If new fuel-efficient aircraft can fly passengers around the world at lower unit cost, why go for the big four-engine monsters of Airbus? If new technological advances can increase aircraft range to enable planes to fly efficiently from Europe to Asia Pacific non-stop, why bother with the stopover in Dubai?

There are valid answers to both questions. A full A380 still makes sound commercial sense for the operator, and Airbus has been smart in making later versions of the plane more fuel efficient. The fall in the cost of aviation fuel also helps.

Likewise, Emirates and Dubai have been shrewd in their marketing of the airport and the emirate. Increasingly, passengers from India, for example, like to shop in Dubai’s excellent duty-free facilities, or enjoy a few days at the city’s luxury hotels, before boarding their A380 for onward transAtlantic flight. Emirates’ A380 is a key part of the Dubai tourism brand.

Dubai’s strategy as the most successful of the “super connector” hubs of the Middle East is most likely secure, especially with the new Dubai World Central airport — which will be the biggest in the world — under construction. This will allow Emirates to get more slots for smaller aircraft than the A380 at the new super-hub.

But whether it will continue to be served by the A380 a decade from now is a moot question. The plane is still lauded for its onboard facilities and the extravagant luxury of its premium sections, but the reality is that it is a 20-year-old design and will soon begin to look its age, however good the cabin refits.

Emirates — keen to restore its financial edge after a sharp profits fall last year — is aware of this, and while the plane is and will remain its mainstay for the next few years, the airline is conscious that it must not put all its eggs in the A380 basket. It has been canny enough to keep Boeing happy at the same time as Airbus, and actually flies more of the US company’s 777s than A380s.

In the future, new versions of the 777 will probably be top of the Emirates shopping list, especially the 777X, a viable fuel-efficient alternative to the A380. Boeing is talking about a stretched version of the plane as well, which may just fit the bill for Emirates. Airbus’s A350 may also begin to look more attractive.

The A380 has been the perfect partner for Emirates’ expansion, and will continue to be a key component of its operations and its marketing for some years to come. But all good things must eventually come to an end.

LONDON: The Saudi stock market, known as the Tadawul, remains the “dominant” Gulf player in attracting initial public offerings (IPOs), according to a report published on Sunday by PwC.

Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai

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