20/09/2010 00:00 AST
Potential issuers need to get real about prices they can fetch if the telecoms, retail and energy sectors as well as prized government assets are to lead a revival in Gulf initial public offerings (IPOs), say analysts.
Thin volumes and high trading volatility -- sparked mainly by regional retail investors -- have sunk valuations on the region's exchanges and kept international institutions on the sidelines, awaiting clarity on companies' debt troubles.
'If companies are to sell assets or equity voluntarily, we need more realism around valuations and current market conditions,' said Paul Reynolds, head of equity and debt advisory at Rothschild in the Middle East.
'The lack of interest in regional equity markets is far more to do with developing investor appetite and market conditions than structural issues.'
After a sharp slump in IPOs out of the Gulf in the last two years, Omani telecoms operator Nawras' IPO opened for subscriptions on Sept 15 and will test whether deal pricing meshes with current market sentiment.
It also spearheads efforts in the region to broaden opportunities for investors looking beyond the property and banking sectors.
Dubai's index, heavily reliant on real estate and financial services, has declined nearly 7 percent this year as investors seek to limit further losses on these sectors and seek exposure to others.
'There is a genuine desire by investors to diversify their sector exposure in the region,' said George Pavey, Credit Suisse's co-head of EMEA Equity Capital Markets.
'We need to see equity markets in a healthier state including a lower level of volatility and improved risk appetite (and a) broader re-opening in developing markets and other emerging markets. This will be a phased process.'
Bankers expect future IPO activity to centre on the energy, telecoms, consumer, retail and services sectors. Family businesses active in manufacturing and trading could also bring deals to the market.
The region's first IPO of significance for international investors this year could be Nawras, a unit of Qatar Telecommunications, which is expected to list at the end of October.
'The telecoms sector tends to lend itself to IPOs, particularly early in the cycle as investors warm to a rebound in economic growth and a solid corporate story,' said Klaus Froehlich, an executive director with Morgan Stanley in Dubai.
Regional exchanges realise the need to diversify listings to sectors which will generate more investor interest and drive trading volumes.
'I know that DFM (Dubai Financial Market) and ADX (Abu Dhabi index) in particular are entering into a charm offensive with companies that are more diverse from what has been seen traditionally on the exchanges,' said Steve Drake, head of Middle East Capital Markets Group at PricewaterhouseCoopers in Dubai.
Another boost for investors in the region could come from the listing of some well known and strong state-linked assets, especially as some cash-strapped governments look to raise funds and restructure debt.
'The role of the state in this region in the overall economy is very important and privatisations, if done in the right way, can be a catalyst to reopen the markets. But at this moment we don't expect a storm of massive privatisations,' said Pavey.
Emirates Post, the national postal services provider in the UAE, has been considering an IPO for a couple of years, and some Gulf power and utility groups may also eye a listing.
'There are some great assets and many good IPO candidates in the region. But, it will take some time before the full merits of raising equity capital are acknowledged,' Froehlich said.
Reuters
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