GCC seen issuing more bonds in 2016

07/02/2016 07:56 AST

The fourth quarter of 2015 echoed the sluggish IPO performance in Q3 proving that 2015 was a volatile year for IPOs in the Gulf Cooperation Council (GCC). The theme of uncertainty and negative market sentiment materialized in the second half of 2015 on the back of fluctuations in oil prices and ongoing regional and global political and economic instability, according to PwC Middle East Capital Markets and Accounting Advisory Services team.

The Kingdom of Saudi Arabia witnessed the only IPO in Q4 2015 by Alandalus Property Co. which raised $101 million from the deal. The IPO was oversubscribed and well received by investors and marked the first real estate sector offering on the Saudi Stock Exchange in five years. Q3 of 2015 saw no IPOs while Q2 proved to be the strongest quarter in terms of the number of offerings (4) and the money raised ($1.2 billion). Looking at IPO performance in Q4 2015 compared to the same quarter in the previous year (Q4 2014), the number and money raised was considerably higher in the prior year with $7.3 billion from a total of 5 floats, mainly driven by the largest IPO in the GCC in 2014 by National Commercial Bank.

Steve Drake, Head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East region, said: “We have seen dampened activity both in the bond and Sukuk markets this quarter demonstrating that the region cannot remain immune to external factors. Notably during 2015 perpetual notes appeared to be in demand by investors and we saw several deals come to market this year both from banks and corporates.”

However, he said “we should expect 2016 to show improvements in the debt market particularly sovereign issuances as the continued slump in oil prices widens deficit gaps. Governments in the Gulf will need to raise funds and tapping into the debt market is one way of doing so. The concern however is the potential increase in supply which may result in an increase in the cost of borrowing.”

In terms of US interest rate hikes, Drake said “going into 2016 we are yet to see how this will factor into the market and regional issuances. With Gulf currency’s being pegged to the US dollar, we saw some governments increasing interest rates – meaning borrowing from banks may become more expensive and raising funds via issuing bonds or Sukuk will be a more attractive option.”

Though the “outlook for 2016 remains uncertain…, it will be difficult for investors and issuers to regain confidence and come back to the market. There are many strong regional fundamentals however and so we hope markets recover in 2016 as many companies are now preparing and waiting for the right time to IPO,” he pointed out.

PwC report noted that with no IPOs in Q3 of 2015, the total money raised in H2 2015 was $101 million from one offering, while $1.3 billion was raised from 5 IPOs in H1 driven by a stronger Q2 performance during the year. In terms of performance in H2 2015 compared to the prior year, a total of 7 IPOs raised $8.9 billion in H2 2014. Therefore, in many ways Q4 2015 was a disappointing quarter for IPO performance.

Total proceeds in 2015 stood at $1.4 billion from 6 deals compared to $10.8 billion raised from 16 deals in 2014, $702 million from 9 deals in 2013, $1.7 billion from 9 deals in 2012, $789 million from 9 deals in 2011 and $2.0 billion from 12 deals in 2010, proving that although 2015 was the lowest year in terms of number of offerings over the past 5 years, the total value of offerings improved.

Furthermore in the same period, excluding 2014, the average offering value of IPOs in 2015 was the highest. The Saudi Ground Services offering back in June marked the largest IPO during 2015 raising $752 million.

In the GCC, Saudi Arabia dominated the IPO market in 2015 in terms of number of offerings (6) accounting for 67% of the total proceeds raised ($1.1 billion), accounting for 77% of the tot

Saudi Gazette