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Tumbling investor confidence in GCC hits IPO market

Issac John / 27 April 2011

DUBAI Political upheaval in the region has negatively impacted GCC investor confidence with several companies reassessing their initial public offering plans and either deferring or shelving future IPOs, PricewaterhouseCoopers, or PwC, said on Tuesday.

“The first quarter of 2011 has been very disappointing so far for IPOs in the region with no transactions yet to be reported on any of the GCC exchanges compared to the three offerings in the last quarter of 2010 which raised approximately $1 billion,” said PwC, a professional services organisation.

Steve Drake, head of PwC Capital Markets Middle East, said increased economic activity, improvements in investor confidence and revival of the GCC equity markets were fundamental to the return of IPOs on the GCC exchanges.

“There are some positive indicators of economic revival although the political unrest we have seen in parts of the region is a growing market concern for both regional and international investors, which as a result has impacted regional markets,” he said.

“The equity markets in the GCC region have witnessed both, depressed volumes and market value erosion which were at their lowest levels in February this year. This compares to the Dh420 million of fresh equity raised through six IPOs in the first quarter of 2010,” PwC said.

PwC said several GCC based companies have shown interest in the international markets with Kuwait Energy Company and Topaz Energy and Marine announcing their intent to list their shares on the London Main Market. “Unfortunately, both companies have since announced deferral of their listing plans, being examples of difficulties faced by regional companies looking to raise equity on international markets.”

“We are seeing an increasing trend in local companies seeking international listings to be able to access international capital, “The deferral of both Topaz and KEC are clear evidence of the difficulties regional companies are facing in attracting international capital.”

The Royal Bank of Scotland said in March that it saw two to four initial public offerings from the Gulf and between seven and 10 mandates for bond issuances in the Middle East and Africa in 2011.

Tom Emmet, RBS managing director and head of corporate finance and equity capital markets for the Middle East and Africa, said IPOs, to be valued in the range of $200 million to $400 million in size, would likely be listed on the London bourse with the UK bank actively involved in two Gulf region IPO deals. Both deals will come after the first half of 2011, he said. PwC said the regional public debt markets, on the other hand, have continued to be reasonably robust in the first quarter of 2011 with some sizeable issuances placed including, amongst others, the Dubai Electricity and Water Authority’s $2 billion placement, International Petroleum Investment Company’s $2.5 billion offering and Qatar Telecom’s $1.5 billion issuance.

“The size of these and other offerings is evidence that both regional and international appetite for fixed income investments remains strong albeit seemingly primarily for State Owned Entities.”

“The bond and sukuk markets appear to continue to be reasonably strong although we have recently seen some issuances deferred. Issuers coming to the market in the first quarter 2011 have generally paid a higher price for their debt than may have been the case in the fourth quarter 2010.”

PwC said it expected to see the public debt markets continue to be a viable source of funding for many issuers given the continuing demand for investment spend, particularly infrastructure.

In 2010, IPO market in the GCC climbed 26 per cent in 2010 to $2.7 billion compared to $2.1 billion in 2009, ending the year with a positive note, according to Capital IQ data. Although the number of IPO deals in the GCC in 2010 went down to 10 from 12 in 2009, the total amount surged to $2.69 billion from $2.13 billion a year earlier, said Capital IQ.

·         issacjohn@khlaeejtimes.com

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