Posted on January 20, 2015

MENA companies raised US$11.5 bn in 2014 through 27 IPOs, almost four times more than the US$3.0 bn raised in 2013 through 25 IPOs, according to the EY MENA IPO Eye: Q4 2014. The highest amount of capital was raised in 2014 since 2008.

Phil Gandier, MENA Transaction Advisory Services Leader, EY, says: “2014 was a good year for MENA IPO markets, moving closer to the pre-crisis capital raised in 2008 of US$13.2 bn. Despite the significant improvement in the capital raised during 2014, many companies took the decision to delay or abort their IPO plans in Q4 due to declining oil prices. Although there is a healthy pipeline of IPOs for 2015, companies are adopting a “wait-and-see” approach until markets have settled. The interest is still there, but companies are watching the markets closely, waiting for the right window of opportunity to float.”

Saudi Arabia and UAE were the two most active IPO markets in the MENA region in 2014. Both markets have collectively raised close to US$10 billion in IPOs. Industrial manufacturing was the most active sector in 2014 with five IPOs, followed by three IPOs each in food and beverages, oil and gas and real estate sectors

Q4 sees largest listing in MENA history and the second largest globally in 2014

MENA IPO market witnessed high activity in the last quarter of 2014 raising US$7.4 billion through eight IPO. National Commercial Bank (NCB), Saudi Arabia’s biggest bank by asset size, was the biggest IPO in MENA history and second largest globally. The IPO was oversubscribed 23 times ahead of its IPO in November 2014, representing the only financial services IPO of the year.

Mayur Pau, MENA IPO Leader, EY, says: “The strong Q4 performance closed 2014 on a positive note, as investor confidence in the region remains high despite the backdrop of volatile equity markets and falling oil prices. The impact of this has been felt in the regional stock exchanges in Dubai, Kuwait, Saudi Arabia, Qatar and Bahrain, which have tumbled over the past few months. Investors are becoming more cautious despite other market fundamentals remaining largely unchanged. Amid all the positive signs that indicate IPO market growth, uncertainty still exists in the market.”

Qatar Airways HQ 300x250

Greenfield IPOs back in fashion but probably not for long

The MENA region witnessed the return of greenfield IPOs after several years. Greenfield IPOs went out of fashion partly because of the authorities’ unfamiliarity with a structure that was not directly asset-backed or based on historical performance. The IPO of Marka, Dubai Parks and Resorts, and Amanat Holdings in 2014 signalled significant sufficient investor confidence in the UAE in particular to invest in these companies.

Both Amanat and Dubai Parks and Resorts were oversubscribed similar to Marka, however, both companies have lost value since IPO following volatility in the equity markets to 16.5% and 20%, respectively, while Marka’s value at year end remained stable. However, a decline in the share value for these greenfield companies in particular, following volatility in the equity markets in Q4 2014, has prompted the UAE Securities and Commodities Authority to consider banning all but a limited class of start-ups.

Falling oil prices to impact MENA region in the short-term

The decline in oil prices has left regional and international investors concerned about the curtailment of future government spending on infrastructure, education and healthcare. This would have an impact on companies operating in these sectors in the short run, and investors would be cautious to raise money through IPO in Q1 2015. However 2015 GCC budgets announced so far have been expansionary in nature for other than non-essential items. The fiscal reserves of some of the countries in the MENA region such as Kuwait, the UAE, Qatar and Saudi Arabia, can cover government budget deficits for the foreseeable future.

 “MENA investors will continue to be guarded if the price of oil hasn’t stabilized. Regional companies will be analysing the markets, waiting for oil price volatility to settle down before they can launch their IPOs. Market fundamentals still remain positive however, and developments in regulatory reforms are still expected to drive IPO growth in Q1 2015, drawing new liquidity to the region. An increasing number of regional governments are looking to diversify their economies which will encourage companies in the non-oil sector to expand through the IPO route, concludes Phil.