GCC IPO mkt activity continues slow pace in Q1

Kuwait dominates sovereign bond market in first qtr

DUBAI, April 15: The Gulf Cooperation Council (“GCC”) region experienced a slow start to the year with two Initial Public Offerings (“IPOs”) in Q1 2013, a pattern similar to the previous quarter which saw the same number of listings. Although IPO volumes remained flat, total offering value increased more than three times to $377 million in Q1 2013 compared to total proceeds of $78 million raised in the same period last year. In comparison with Q4 2012 total offering value increased by 35% from $250 million.

Saudi Arabia continued to be the only IPO active market in the region, hosting both the offerings in Q1 2013. The two IPOs comprised the Northern Region Cement Company which raised $240 mil- lion and National Medical Care Company which raised $97 million. Both the IPOs were oversubscribed and performed well in the after-market recording substantial gains on their debut on the Saudi bourse. The response from investors would seem to indicate a more positive market sentiment which hopefully should help to reinvigorate demand for IPO activity in the region.

Steve Drake, Head of PwC’s Capital Markets business in the Middle East region said:

“With the exception of Saudi Arabia, IPO activity on regional stock exchanges in the first quarter continues to be subdued. We continue to see regional interest for equity rising but this interest is not yet manifesting itself into fresh equity being raised on the regional markets. In part this is due to certain regional markets remaining depressed and in others the regulatory process taking longer for companies coming to market. We are hopeful that 2013 will see an increase in activity over levels seen in recent years but it is unlikely to reach levels we saw pre-crisis in 2007 and 2008.”

In Europe, a surge in floats of private equity-backed companies during March 2013 may be the first signs of a recovery in the European IPO markets. The European IPO activity for the quarter rose by 40% from $2.9 billion to $4.1 billion. This increase was driven by LEG Immobilien raising $1.5 billion on the Deutsche Börse being the largest IPO of the year so far and a number of floats of domestic and PE-backed companies in London. Additionally, aftermarket performance from the top IPOs has also been positive, with the majority of the top IPOs either improving on or holding the offer price after IPO.

The GCC bond market delivered healthy returns during Q1 2013, with positive performances across the major asset classes. Kuwait dominated the sovereign bond market, with the Kuwaiti Central Bank issuing $5.6 billion of bonds comprising treasury bills and long-term government bonds. In Q1 2013, corporate bond issuances were largely concentrated in the banking sector with UAE based Abu Dhabi Commercial Bank and Emirates National Bank of Dubai raising $1.5 billion and $750 million, respectively. Other notable issuances included Ooredoo (previously known as Qatar Telecom) and Emirates Airline which raised $1 billion and $750 million during the first quarter.

The sukuk market in the GCC continued the upward trajectory in Q1 2013, reinforcing growing demand for Islamic debt instruments in the region. The growth was primarily driven by the UAE, which saw some big-ticket corporate sukuk issuances during this quarter with the likes of DEWA, Emirates Airlines and Dubai Islamic Bank, each issuing sukuks worth $1 billion. The hybrid perpetual sukuk issuance by Dubai Islamic Bank was similar in structure to that issued by Abu Dhabi Islamic Bank at the end of last year, indicating the growing popularity of raising Tier 1 debt capital through public sale in the GCC. Sovereign sukuk issuances were led by the UAE in the first quarter, the most prominent being the Government of Dubai 10 year $750 million sukuk issued in January 2013. Steve Drake said: “The debt markets in the GCC grew in line with their historical trend backed by strong market appetite and sustained funding needs. The Saudi debt market was largely sedated during the first quarter of this year, however, this is expected to change with a number of issuances mainly in the project finance/ construction sector currently in the pipeline.”