Dr. Nasser Al Saidi, Chief Economist of the DIFC Authority said that the global financial crisis and the resultant economic downturn have dried up the IPO pipeline in the MENA region. But stabilisation in advanced economies and recovery in emerging Asia, the region’s main trading partner, was encouraging the business community to revive plans for new listings.

“The pipeline of IPOs and M&A deals is building up and we are likely to witness a resurgence of the market in the coming two years,” he told participants at a workshop organised to discuss the prospects for IPOs and M&As 
in the region.

“Regional economic integration, improved business prospects and corporate restructuring are also driving interest in mergers and acquisitions,” he said.  Several speakers including Josef Schuster, Director, IPOX Schuster; Phil Gandier, Managing Partner, Transaction Advisory Services, Ernst & Young; Peter Fort, Executive Director for M&A, Morgan Stanley; Amjad Ahmed, Senior Managing Director, NBK Capital; and Imad Ghandour, Executive Director, Gulf Capital also talked about the potential for an alternative investment market that could provide much needed capital for the burgeoning small and medium enterprise (SME) sector in the region.

“Over the past decade, we have seen the establishment of several successful SMEs, especially in Free Zones. These companies are on the lookout for financing to expand. A well structured ‘second tier’ or alternative investment market, which these companies can tap for capital, is critical for the sustained growth of businesses,” said Dr. Saidi.

Later talking to reporters Dr. Saidi said that restructuring of the corporate sector, which could give a big push to the IPO and M&A activity, has been hampered by outdated and inconsistent bankruptcy and insolvency laws.

He said liquidating a business in the region can take three and a half years on average and even then investors recover only about 30 cents on a dollar. “Insolvency laws are outdated and inconsistent. There is a strong stigma attached to the use of formal insolvency proceedings,” he said, adding that the use of informal procedures lead to a lack of transparency.

Dr. Saidi said the cost of liquidating a business averages around 15 percent of its assets. “It takes a long time and it is costly,” he said.

Insolvency laws have come to the fore in the region over the past 18 months as the financial crisis forced many companies into bankruptcy. The crisis exposed a lack of adequate legislation as creditors struggled to recoup money owed.

Dubai has announced setting up of a special tribunal to hear claims against some government-related entities and plans to adopt the insolvency code used in the DIFC Courts, based on the Commercial Court in London.

Several high officials in Dubai have been quoted in the media saying that the emirate was working on issuing a comprehensive bankruptcy-insolvency law that will protect businesses under financial stress and help them restructure. 

 business@khaleejtimes.com