As investors continue to exercise caution following the recent global meltdown and the Dubai debt fallout, appetite for initial public offerings (IPOs) in the Middle East had remained relatively stagnant in the first quarter, according to Ernst & Young’s latest quarterly Global IPO update.
The first-quarter doldrums resembles the downtrend experienced in the whole of 2009 when only about $2 billion (Dh7.3bn) were raised from 12 regionally-listed IPOs. This figure was a far cry from the record level of $13.5bn raised from over 50 listings in 2007.
Ernst & Young’s report showed that in the first three months of 2010, Saudi Arabia was the sole country in the region to initiate IPOs, accounting for 1.9 per cent or five of the 39 total transactions finalised in the Europe, Middle East and Africa (Emea) region.
In an earlier presentation, Phil Gandier, managing partner-Transacton Advisory Services of Ernst & Young Middle East, said IPO activities in the region started moving north in the last quarter of 2008 as the sector took a massive blow from the financial crisis.
“The downward IPO trend continued in 2009 with just $1.99bn value raised, which included Vodafone Qatar IPO that raised $952m during Q2 2009,” Gandier mentioned in a report presented at the Dubai International Financial Centre (DIFC) in February.
Dr. Nasser Saidi, chief economist at DIFC, also mentioned that the region’s struggling IPO market, combined with a 71 per cent decline in announced private-equity deals, have influenced the limited activities initiated by funds, buyout firms, family offices and retail investors in 2009.
“Uncertainty and heightened risk aversion means that investors are wary of putting cash into deals or new funds,” says Saidi.
Industry still hopeful as global IPO soars
Unlike the regional performance, the global IPO markets have grown by leaps and bounds, posting a dramatic jump of 413 per cent to 267 deals worldwide in the first quarter of 2010 from 52 deals in the same period last year.
Capital raised from these transactions reached $53.2bn, recording a whopping difference from $1.4bn in the first quarter of 2009. However, the latest figures failed to outperform the enthusiasm experienced in the last quarter of 2009 when deals hit a staggering amount of $67.2bn from 297 listings.
“IPO activity in Q1’10 is the highest first quarter activity since 2000 (by number of deals and capital raised). This is a good example of continuous recovery in global equity markets,” the professional services firm said in its Global IPO update.
Trends in recent IPO activities have also shown a shift in geographical importance with emerging markets accounting for the bulk or 72 per cent of transactions finalised during the period and developed countries making up just 28 per cent.
Ernst & Young attributed this new shift to the significant capital contribution of IPOs listed in Brazil, Russia, India and China (Bric), which totaled $26.2bn or about 49 per cent of the overall capital raised globally in the first quarter.
“While global number of deals declined 10 per cent from Q4’09 to Q1’10, the number of deals by Bric issuers actually increased 9 per cent. This demonstrates the strength of emerging markets in IPO activity,” the firm commented.
The Asia-Pacific region accounted for the biggest market share with 66 per cent, the Emea with 19 per cent and North America with 13 per cent.
Down, but not out: regional markets hold promise
Despite the Middle East’s lacklustre performance, analysts are not discounting the possibility of future IPO growth in the region. Gandier said that in as far as the economy is concerned the region has a “great growth story to tell” as it is expected to outperform other economies.
He admitted that due to recent market indicators, investors in the region have become more skeptical, thus, companies have to carefully plan their IPO listings in order to make it more successful.
“The lesson here is IPO candidates who want to be successful need to look at an IPO as a long-term transformation, rather than an event. More time has to be spent on readiness – Plan, plan, plan,” Gandier mentioned.
Saudi Arabia, he added, is also keeping the regional market alive with a strong IPO pipeline of about 50 deals expected this year.
Consider also reading:
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Mideast IPOs offer alternative refinery investment
Five Saudi firms plan IPOs before end of May
Mideast, North Africa IPOs sink 83pct
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