Why GCC IPO market has picked up
The Saudi plan to float around five per cent of Aramco in 2018 is a centrepiece of the kingdom's Vision 2030.
Dubai - 2017 has shown significant increase in number of IPOs, with 17 offerings compared to four over same period in 2016
Initial public offering activity in the GCC has begun to gain momentum with the third quarter witnessing the issuance of four IPOs, reflecting the resilient investor appetite in the run-up to the milestone launch of the $2 trillion Saudi Aramco offering, set to be the world's largest.
While the proceeds raised from third-quarter IPOs amounting to $140 million were lower by $31 million compared to the previous quarter, the increase in activity underscored the rebound in investor confidence as evident from the stronger than expected response to Emaar Development's IPO last week, which raised Dh5.5 billion within half-a-day of the issue's opening.
The Saudi plan to float around five per cent of Aramco in 2018 is a centrepiece of Vision 2030, a wide-ranging reform plan to diversify the Saudi economy beyond oil, which is being championed by Saudi Crown Prince Mohammed bin Salman.
Steve Drake, head of PwC's capital markets and accounting advisory services team in the Middle East, said GCC governments are continuing to tap into both domestic and international debt markets, bolstering their budgets amid prolonged low oil prices.
"We are set for a busy end of the year, with both Saudi Arabia and UAE governments expected to tap the debt market with their international bond sale of $12.5 billion and $10 billion, respectively." He said compared to the same period last year, third quarter 2017 experienced a recovery as there were no IPOs in that quarter in 2016.
On a year-to-date basis, 2017 has shown a significant increase in the number of IPOs with 17 offerings compared to four over the same period in 2016. However, proceeds raised during year to date were four per cent lower compared to 2016, despite the increased number of IPOs.
Saudi Arabia's Tadawul remained the dominant exchange in the GCC in terms of IPO proceeds, raising $110 million via two IPOs, comprising 79 per cent of total IPO proceeds in third quarter 2017. The largest IPO during the quarter was by Zahrat Al Waha Trading raising $61.2 million.
The Muscat Securities Market witnessed its first IPOs since June 2015, raising $30 million via two IPOs, comprising 21 per cent of total IPO proceeds in the third quarter 2017. With total proceeds of $47.1 billion via 329 IPOs, global IPO activity in third quarter 2017 was 23 per cent higher in terms of proceeds and 37 per cent higher in terms of the number of IPOs, compared to the same 2016 quarter, analysts at PwC said.
"Low volatility coupled with high equity valuations created a favourable listing environment. The only significant source of risk emanated from the Korean peninsula. As political uncertainties in Europe have largely disappeared and tax reform is on the agenda in the US, the typically strong fourth quarter looks promising," they said.
Despite a number of large IPOs in the second and third quarters, Snap remains the largest IPO of the year with proceeds of nearly $4 billion.
According to PwC, another strong display by the GCC debt issuers, as investors' appetite for sovereign issuances remained relatively high, with Saudi Arabia and Bahrain among key sovereign issuers.