Where did all the IPOs go?

There were no flowers, no colourful fruit cocktails and not much of an atmosphere. Drake and Scull banners reading “Innovation” decked the walls and little company flags hung forlornly on coffee tables. When Majed al Ghurair, the chairman of Drake and Scull, quietly rang the opening bell, the brokers gearing up for another working day barely lifted their heads. In the background, Drake and Scull employees hovered over trading screens and uttered sighs of relief when the first price read Dh0.85; this from a share that listed at Dh1.

One week later and Drake and Scull is trading near Dh0.70, hardly making a case for other companies to follow suit and list on the Dubai Financial Market (DFM). Doomsayers already predict that Drake and Scull will enter the history books as the only DFM listing for this year.

Even in the Gulf region there is little on the horizon besides Vodafone Qatar, which will offer 40 per cent of its shares in an initial public offering worth 3.38 billion Qatari rials (Dh3.4bn) from April 12. This week’s listing of Green Crescent on the Abu Dhabi Securities Exchange (ADX) is mandatory, as are the three planned IPOs of insurance companies in Saudi Arabia. None of these firms can operate without selling shares to the public.

So far this year, the region has seen only one IPO, that of Etihab Atheeb Telecommunications which listed 30 per cent of its stock early last month on the Saudi exchange, raising 300 million riyals (Dh293.8m) with substantial backing from Saudi investors. Its shares rose by almost 60 per cent on their debut on Saturday before slipping slightly to close at 14.45 riyals.

The firm’s IPO was Saudi Arabia’s first since August after regulators froze fresh listings because of the impact of the global financial crisis on markets. There were 12 listings on the DFM last year, many of them secondary listings of Kuwait-based companies, and 16 listings of securities in 2007, most of which were UAE-based companies.

“There are certainly many issuers preparing and exploring,” says Gerhard Hametner, the director at MAC Capital, an investment bank. “Once the market is ripe to go, many will go.”

At present, there are few incentives to list. “This is a buyer’s market and prices would be very, very low.”

Investment bankers say many companies which had considered a listing until a few months ago are now pulling back.

“It is right to say that a couple of listings have been postponed because of the market,” says Declan Hegarty, the co-head of coverage for the Middle East and North Africa for HSBC. “Current valuations will make people think twice whether to come out into the market or not.”

But fear of failure, expressed in low valuations, is only one reason for companies to shy away from listings. The other is the general dearth of funds. Banks and brokers have clamped down on lending to those seeking to invest in the stock market and few people have spare cash.

However, the negative experiences in the UAE in recent years with short-term money inflows may eventually trigger a listing renaissance.

“Given their experiences they will look at new sources of capital,” says Mr Hametner, referring mainly to local banks and contractors which were burnt by their dependency on the flood of cheap foreign money that was available, then suddenly pulled out of their company coffers last summer.

Mr Hametner expects the market to recover in six to 12 months, when “funding begins to defrost”. Also, companies will have learnt their lessons from depending too much on bank funding and will explore new ways of corporate financing.

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