Budget deficits, oil volatility to boost GCC IPOs

dubai - Bourses expect to benefit from privatisation drive and listings from family businesses

GCC governments, facing persistent oil price volatility and fiscal deficits, will increasingly be looking at privatisation and initial public offerings (IPOs) to raise capital to address immediate budget deficits, head of the Qatar Stock Exchange (QSE) said.

Rashid Al Mansoori, chief executive of QSE, said there remains a shortage of primary market transactions in the Arab region.
"Cyclical factors have not helped [market conditions will turn again] but the structural factors remain of larger concern. Owners of businesses still look at the cost of doing an IPO and are not always convinced that the costs are worth the benefits," Al Mansoori told Khaleej Times.

The first IPO recorded in 2017 came from Qatar's Investment Holding Group in January 2017.

He said Qatar's IPO market has not been immune to the slowdown. "However, we are confident that the pipeline we have established over the last three years in particular will see more IPOs than we have seen recently."

"We expect ?to benefit from both the privatisation drive, most evident in Saudi Arabia, but also listings from family businesses too," said Al Mansoori, who is in Dubai to address the second Arab IPO Summit, which started on Tuesday.

The QSE chief said family businesses or more generally private companies are the long-term pipeline for stock exchanges. "Privatisations may provide the catalyst but cannot be the basis for sustainable growth. We have regular conversations with family businesses, who are the mainstay of many GCC economies, but who are reluctant to list."

Family-owned businesses in the GCC have been hesitant to introduce external/minority shareholders and/or see their equity diluted. "The PJSC structure with access to external capital and separation of ownership and executive management has been the most successful model worldwide and one which is of great importance as family businesses plan for third and fourth generation owners," said Al Mansoori.

"We are confident that messaging relating to the benefits of using the public markets are being better understood and the capital markets' role in job creation and economic growth will spur their use," he said.

Nikhil Rathi, CEO, London Stock Exchange, who will also be addressing the IPO Summit, said the LSE has a long history of supporting companies from the region. "There are 37 Middle East and North Africa companies with a combined market capitalisation of $66 billion listed in London."

Rathi said the LSE remains committed to building links with the GCC and share an interest in its future growth and development. "There are excellent opportunities for us to work in partnership with local exchanges, supporting them to showcase local companies to London's pool of international capital and an unparalleled group of investors with detailed knowledge of Middle East investment and opportunities," said Rathi.

On the benefits of going public at a time like this, Rathi said: "This form of capital is unique in that it is patient equity capital, where investors are prepared to invest for the long term, allowing companies to focus on growth and innovation, rather than repaying debt loans," said Rathi.

- issacjohn@khaleejtimes.com