16/05/2016 07:40 AST
IPO performance in the Gulf Cooperation Council (GCC) in the first quarter of 2016 remained “relatively sluggish” in terms of the number of IPOs as volatility in oil prices and the slowdown in the global economic environment impacted capital markets activity, according to a new report.
However, the value of the only offering in the quarter improved significantly proving investor appetite exists for companies that have the right equity and growth story and operate in defensive sectors such as healthcare and education, PwC said.
Saudi Arabia was the only active IPO market in Q1, 2016 with one offering in March. Middle East Healthcare Company (MEAHCO) that owns and operates the Saudi German hospitals offered 27.61mn shares to the public (amounting to 30% of the company’s share capital) and raised proceeds of $471mn. The company was listed on the Saudi Stock Exchange, or Tadawul.
Looking at IPO performance in Q1 compared to the same period in the prior year, although there was just one IPO, the total value raised in Q1 2016 was 2.5 times higher than compared to the same period in the prior year. Furthermore, looking at performance in the previous quarter, the one IPO in Q4 2015, also listing on the Tadawul, raised $101mn, representing 21% of the amount raised in the first quarter.
The Tadawul has been the most active market during the past five quarters, if not the only one, and is expected to remain the market with the highest activity in the GCC, taking into account the forthcoming IPOs currently in the pipeline.
Steve Drake, head, PwC’s Capital Markets and Accounting Advisory Services team in the Middle East said, “The key elements characterising the 2015 capital markets performance related to uncertainty over oil prices and the geo-political developments in the GCC region, which continued during the first part of 2016. However, the GCC pipeline for the remainder 2016 looks promising. IPOs put on hold in 2015 due to regional instability are expected to come back in 2016 as lower oil prices become the norm and are factored into the market.
“Over the longer term, we would expect to see positive impacts on the Saudi Arabia equity markets in particular as a result of the recently announced government reforms although it is difficult to predict exactly when that might be. Similarly, the Capital Market Authority’s (CMA) desire to increase the number of listed entities on the Saudi exchange is expected to have a positive impact on IPO volumes in the medium term.’’
Global IPO issuance experienced a significant slowdown in Q1, PwC said. The first quarter of the year is usually a quiet period which coupled with high levels of volatility, resulted in a weaker global growth outlook with a drop in oil prices, and overall diverging central bank policies taking a toll on equity markets.
The amount of financing raised through global IPOs fell by 66% in the first quarter compared to Q1, 2015, making it the slowest first quarter since the eruption of the financial crisis.
Global IPO money raised stood at $14.2bn from 141 deals in the first quarter compared to $42.3bn from 252 deals in Q1, 2015 and $50.7bn from some 240 deals in Q1, 2014.
Despite increasing worries about banking profitability in an environment of negative interest rates, financial services issuers proved the most active in Q1, raising $6.3bn from 23 IPOs, followed by companies within consumer goods issuers, which raised $2.2bn from 20 IPOs and healthcare, as third, raising $1.8bn from some 24 IPOs, PwC said.
Gulf Times
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