IPO activity in GCC stays sluggish in Q1

09/05/2016 05:21 AST

IPO performance in the GCC in the first quarter of 2016 remained relatively sluggish in terms of numbers as volatility in oil prices and the slowdown in the global economic environment impacted capital markets activity.

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.

Saudi Arabia was the only active IPO market in Q1 2016 with one offering in March. Middle East Healthcare Company that owns and operates the Saudi German hospitals offered 27.61 million shares to the public (amounting to 30 per cent of the company's share capital) and raised proceeds of $471 million. The company listed on the Saudi Stock Exchange, Tadawul.

Looking at IPO performance in Q1 2016 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 Tadawul, raised $101 million, representing 21 per cent of the amount raised in Q1 2016.

Tadawul has been the most active market during the past five quarters 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 of 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 which continued during the first part of 2016. However, the GCC pipeline for the remainder of 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 desire to increase the number of Saudi Arabia-listed entities on the Saudi exchange is expected to have a positive impact on IPO volumes in the medium term."

Global IPOs

Global IPO issuance experienced a significant slowdown in Q1 2016. 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.

Khaleej Times