Record number of IPOs in first quarter
The 10 share issues were most in any quarter since 2012
The GCC had a record number of IPOs issued in the first quarter of the year, according to a report by PwC yesterday. The 10 IPOs issued was the most in any quarter since 2012, PwC said. The surge was in large part driven by the Saudi Tadawul’s launch this year of the first parallel market (Nomu) in the GCC. Nomu is an alternative equity market to the Tadawul, aimed at smaller cap companies, although it 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 seven IPOs.
Meanwhile, on the primary exchange front, there were three offerings in the first quarter, including by Al Jazira Mawten Reit fund on Tadawul offering 11.8 million shares and raising US$31 million.
The fund invests in developing real estate to generate rental income. Another listing was by ENBD Reit fund on Nasdaq Dubai offering 94.6 million shares and raising proceeds of $105m. 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. The third was by Investment Holding Group on the Qatar Stock Exchange.
IPO issuance in the first quarter of the year compared with just one in the same period last year, PwC said. However, the total proceeds raised in the first quarter of this year was 15 per cent lower. This mainly relates to the nature and characteristics of the Nomu 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, the report said. Furthermore, the number and total proceeds raised from IPOs in Q1 2017 sharply increased compared with Q4 2016, which had one IPO raising $37m. Saudi Arabia has been the most active market in terms of the number of offerings and proceeds raised during the first quarter, with a total of eight IPOs on Tadawul, out of which seven were listed on the Nomu Parallel Market with a total of $15m raised.
“An interesting start to the year, with the launch of Tadawul’s alternative equity market resulting in an influx of listings during the first three months of the year,” said Steve Drake, a PwC partner and the head of PwC’s capital markets and accounting advisory services team in the Middle East.
“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,” Mr Drake said.
Globally, the first quarter this year was the scene for low volatility coupled with new record heights in certain equity markets, the PwC report said. While the US Federal Reserve lifted rates for a third time since the financial crisis, the European Central Bank 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 the same period last year. IPO proceeds increased by 155 per cent compared with the same quarter last year. In total, 321 IPOs raised $37 billion compared with $14.5bn via 146 IPOs in the first quarter last year and $42.5bn via 253 IPOs in the same period a year earlier. The GCC bonds and sukuk market remained strong in Q1 2017, sovereign issuances continued to be popular among governments, which are benefiting from strong credit quality, with most of them holding investment grade ratings, said the report.
The first quarter this year was marked by the government of Kuwait bond issuance of $8bn, the third-largest in the GCC, following Saudi Arabia’s record $17.5bn. Oman also issued a $5bn bond this quarter.
In corporate bonds issuances, National Bank of Abu Dhabi issued its second Formosa bond (US dollar bond listed in Taiwan), structuring it as a multi-callable zero coupon bond for an amount of $885m with a maturity of 30 years. Nasdaq Dubai continued to prove popular among corporate sukuk issuers with notable issuances such as Dubai Islamic Bank issuing $1bn sukuk and Islamic Development Bank $1.25bn 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 $114m, and three short-term leasing type sukuk each worth $69m.
“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,” Mr Drake said
“The longer-term impact of the interest rate hike by the US Federal Reserve remains to be seen.”
King Abdullah Financial District in Riyadh. The IPOs were led by Tadawul’s launch of an alternative equity market.