Privatisation to spur GCC IPO momentum in 2024

Most of the deals are likely to come from Saudi Arabia and the UAE

Issac John

Published: Tue 12 Mar 2024, 7:57 PM

An on-going privatisation drive in the GCC countries will speed up the momentum of initial public offerings in the region in 2024, according to market analysts.

The region already has bucked expectations of a muted start to the year with public share sales from Dubai's public parking space operator Parkin, Saudi Arabia's Modern Mills, and Saudi healthcare firm Avalon Pharm.

The sale of minority stakes by government-linked entities and the establishment of public subscription funds will also accelerate the number of IPOs in the region this year, according to Fitch Ratings.

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In its latest report, the credit rating agency noted that credit profiles of financial market infrastructure companies in GCC markets continue to be supported by capital market reforms, resilient IPOs and fixed-income listings in 2024.

Emerging market-focused investment bank EFG Hermes said it is "very bullish" on Gulf markets this year, expecting more, smaller IPOs from the region from a year earlier. Smaller deals are likely to become the norm in 2024 as the private sector becomes the main issuer seeking capital.

Most of the deals are likely to come from Saudi Arabia, the UAE and there is an increase of activity from Kuwait. Oman is now getting more attention from the global banks.

On IPO prospects for 2024, Kamco Invest analysts said that issuance proceeds would be dominated by fewer larger issues this year, while several smaller IPOs should debut on the markets, such as Nomu.

“Revenue mixes and product offerings of GCC FMIs remain less diverse and risk management frameworks less advanced than those in more developed economies,” the Fitch report said.

GCC capital markets witnessed strong growth in 2023 through sustained economic development underpinned by stable oil prices and a boost in non-oil sectors despite a global fall in IPO divisions and bond issuances.

Companies from the GCC region raised a total of $10.79 billion in IPOs last year, data showed.

Although the overall value of funds raised through primary public listings dropped by about 55 per cent annually, the number of IPOs in the GCC declined marginally to 46 issuances in 2023 from 48 issuances in 2022, according to data from Bloomberg and stock exchanges.

The volume of issuances across the GCC last year was driven by smaller ticket listings resulting in lower proceeds.

According to data from Kamco, the UAE topped in terms of the funds raised last year in the GCC through IPOs. Issuers secured $6.07 billion from eight listings on UAE exchanges, accounting for about 56.3 per cent of total proceeds.

The Abu Dhabi Securities Exchange was the top regional bourse with $4.9 billion, followed by the Dubai Financial Market with $500 million.

The Fitch report added that Tadawul dominated the FMI sector in the region in terms of market capitalisation, even excluding the impact of the large IPO of Saudi Aramco in 2019.

The rating agency noted that the energy field, in particular oil and gas, dominates market capitalization across GCC markets, accounting for over half the total at the end of 2023.

“Governments aim to attract investors through reforms, such as the establishment of IPO funds and the relaxation of foreign ownership restrictions, which is shown by the GCC’s increased share in emerging markets indices,” Fitch said.

In January, another study released by Kamco Invest revealed that Saudi Arabia led the IPOs in the GCC region in 2023, with 35 out of the 46 offerings happening in the Kingdom.

Saudi Arabia’s parallel market Nomu witnessed 27 IPOs in 2023, while the Tadawul All Share Index saw eight deals. Companies raised $3.5 billion on the Tadawul with 35 offerings, recording the highest number of IPOs in the GCC during 2023 and 35 per cent of total proceeds.

Kamco Invest noted that the UAE continued its supremacy in terms of IPO proceeds in 2023, raking in almost 56.3 per cent of the issuance proceeds at around $6.07 billion from its 8 listings.

The Muscat Securities Market listed two IPOs with total proceeds of $973 million, while one listing on the Qatar Exchange raised $193 million.