• Home
• /
• Local business

Middle East IPOs Drop on Financial Crisis; Firms may Brave Meltdown

DUBAI - Initial public offerings (IPOs) in the Middle East have dropped considerably in October and November last year on withering investor confidence, but many companies are likely to push ahead with their plans in 2009 despite the global economic meltdown, said Ernst & Young.

“Companies are preparing for IPOs because the long-term strategic rationale for such transactions has not changed,” said Phil Gandier, a partner of transaction advisory services of Ernst & Young Middle East.

Ernest & Young said IPO activity in the region plummeted in October and November with the total $22.4 million raised from the exercise paling in comparison to $6 billion raised from 10 IPOs during the same period in 2007.

In 2008, Saudi Arabia, the UAE and Egypt emerged as the top three markets in terms of capital raised, accounting for 78 per cent, 10.3 per cent and 4.7 per cent, respectively.

In the first three quarters of last year, money raised through 55 IPOs in the region totalled $13.4 billion which was 4.6 per cent higher than the $12.8 billion raised from 52 offerings in all of 2007. UAE outranked Saudi Arabia in 2007, accounting for $6.5 billion of total IPO money raised with Saudi Arabia raising $3.9 billion, while Egypt generated $1.04 billion.

After a robust year in 2007, global IPO activity has dropped more than 50 per cent last year. From January to November 2008, a total of 745 IPOs worldwide generated $95.3 billion compared to 1,790 IPOs during the same period in 2007 which raised $256.9 billion.

IPO activity also fell in emerging markets — Brazil, Russia, India and China which recorded 163 IPOs, raising $28 billion in the first 11 months compared to $106.8 billion from 365 IPOS in 2007.

Despite the drop in listings in the Middle East, “ the pipeline of companies preparing for IPOs remains robust,” said Azhar Zafar, head of mergers and acquisitions of Ernst & Young Middle East.

“Our own research shows that outperforming companies start preparing to list a full 12 to 24 months before actually going public. Although it is difficult to predict when IPO activity will recover, smart companies will use the time to fully prepare for the turnaround in investor sentiment. Regional capital markets need to stabilise in order to rebuild confidence and in order for IPO opportunities to re-emerge.”

Before the global financial crisis worsened in September, IPOs in the region were having a field day. Gulf Cooperation Council data show that member countries’ stock markets have increased by an average of 24 per cent during 2006-2008, while IPOs launched during the period did better than the overall stock performance, with most offerings oversubscribed.

In the UAE, Abu Dhabi Securities Exchange chief executive Tom Healy was quoted in previous reports as saying some 40 to 60 companies in Abu Dhabi were planning to undertake IPOs in the next two years.

Healy expressed optimism the number of firms on the Abu Dhabi bourse to nearly double in two years time because of economic expansion, and as result of upcoming new listing rules, which will allow firms to float a minimum of 30 per cent, down from the current 55 per cent.

Under current regulations, private businesses in the second-largest Arab economy must sell 55 per cent of their stake in an IPO, while a two-year locked-in period is imposed on founding shareholders after an offering.

Most economists believe oil-rich Gulf countries are facing a tough year ahead as the global economic slump may take a turn for the worse before picking up, hopefully in the second half of 2009 — when efforts to bail out companies at risk of folding up and other economic and fiscal measures bear fruit, and investors take another dip into the financial markets.

“Although it is difficult to predict when IPO activity will recover, smart companies will use the current time to fully prepare for the turnaround in investor sentiment. Regional capital markets need to stabilise in order to rebuild confidence and in order for IPO opportunities to re-emerge,” said Zafar.

· rocel@khaleejtimes.com