The Middle East and North Africa (Mena), which has registered a 10-fold year-on-year jump in capital raising through maiden offers during the third quarter of this year, is expected to see further surge in IPOs in 2015 on robust valuations, according to Ernst & Young (EY).
“Mena IPO (initial public offering) activity is expected to surge in 2015, particularly in the GCC (Gulf Co-operation Council) countries, with market valuations returning to somewhere near pre-financial crisis levels. Companies in the financial services and real estate sectors continue to dominate the pipeline,” Phil Gandier, Mena head of transaction advisory services, EY, said.
With a growing regional economy and regulatory initiatives being implemented, investor confidence is slated to rise and bring liquidity to the market, he said. Government spending on infrastructure and diversification of oil-based economies have created more opportunities in the private sector, he added.
“These continued developments are expected to encourage companies to raise capital from the market,” he said, observing that Mena companies raised $1.7bn through IPOs in the third quarter against $150.7mn in the year-ago period.
Emaar Malls Group (EMG) was listed on the Dubai Financial Market (DFM) and the two IPOs of Zain Bahrain and Délice Holding (Tunisia), which closed in Q3, 2014, are expected to be listed in the beginning of the fourth quarter.
“The Q3 witnessed the largest IPO of 2014 to date; Emaar Malls Group raised $1.6bn, potentially signaling a shift in the regional business perception of local markets,” Gandier said.
The IPO, which closed in September this year, was heavily oversubscribed (over 30 times), indicating growing investor confidence and appetite to deploy capital which has been waiting on the side-lines, he added.
EMG was one of the first companies to capitalise on planned regulatory reforms in the UAE by being exempted from having to float 55% of existing shares, ahead of the new regulations being implemented. It floated close to 15% of its shares on the DFM to raise $1.6bn.
Mayur Pau, Mena IPO Leader, EY, said Q3 historically has the lowest activity of the year and this trend has continued in 2014.
“However, the strong fundamentals of the Mena region and improved valuations are likely to drive IPO volume, with a significant backlog expected to come to market over the next quarters as companies wait to go public at the right time,” he said.
The Mena capital markets have been introducing new reforms and relaxing rules in an attempt to encourage local companies consider domestic IPOs. Saudi Arabia’s recent announcement to open its stock market to direct investment by foreign financial institutions is likely to raise its profile on the international scene.
Given the forthcoming changes in UAE regulations, a further potential boost for the UAE stock market is the proposed listing of Damac, the luxury property developer, on the DFM. Damac has global depository receipts currently listed on the London Stock Exchange.
“The more relaxed regulations are increasing the attractiveness of local markets. Regional regulators are continuing to focus more on measures to increase IPOs, thus leading to a much-needed deepening of the equity market in the region and improved sentiment from global investors,” Pau said.
The Mena regional authorities have also been streamlining IPO rules to encourage some of the region’s family business to list as a way of making business more transparent, he added.