IPO performance in the GCC region remained muted as “uncertainty and volatile” market conditions weighed on investors and issuers, PwC said in a report.
Initial Public Offering (IPO) performance in the Gulf Cooperation Council region in the second quarter (Q2) of 2016 remained low as oil prices and global economic volatility, regional political unrest as well as the recent UK vote on the referendum to leave the European Union (EU), or Brexit, continued to bring uncertainty to GCC markets.
Looking at IPO performance in Q2, compared to the same period in the prior year, the number of IPOs diminished by half and the total proceeds raised in the quarter were approximately four times less as compared to Q2, 2015.
In terms of IPO performance in comparison to the previous quarter of this year, although the number of IPO’s in Q2 doubled, the total money raised of $274mn from the two offerings fell by 42% compared to Q1, 2016.
Furthermore, PwC said IPO activity in the first half (H1, 2016) decreased compared to H1 2015, with total proceeds raised of $745mn through three deals, compared to $1.3bn via 5 deals.
Steve Drake, head, PwC’s Capital Markets and Accounting Advisory Services team in PwC Middle East, said, “Whilst uncertainties with oil prices remain and regional geopolitics continue to play out, we would expect to see continued volatility in regional equity markets. Valuations tend to fluctuate significantly in times of uncertainty and investors tend to stay out of equities. Any significant IPO activity we see in the short to medium term is therefore likely to be government sponsored”.
The GCC bond and sukuk market demonstrated improved activity in Q2, especially on the sovereign front as the market witnessed prominent issuances from regional governments, demonstrating appetite for debt in the region still exists.
However, the lower oil prices, which has contributed to increased budget deficits and slower growth, has led to same credit deterioration such as the recent downgrade by rating agencies of Saudi Arabia, Oman and Bahrain.
Q2, 2016, marked one of the largest bond issuances in the region by the Government of Qatar amounting to $9bn, followed by the Government of Abu Dhabi amounting to $5bn, its first in seven years.
The Government of Qatar’s $9bn bond was a $3.5bn issuance with an issue price of 98.924% of the principal amount, a $3.5bn issuance with an issue price of 98.963% of the amount, and $2bn issuance with an issue price of 97.606% of the principal amount.
The Government of Abu Dhabi issued $5bn of bonds with a $2.5bn issuance with an issue price of 99.753% of the aggregate nominal amount and a $2.5bn with an issue price of 99.562% of the aggregate nominal amount.
On the sovereign front, the Central Bank of Bahrain was an active contributor in the region issuing three Sukuk Al Salam each worth $114mn and three short-term leasing type sukuk each worth $69mn.
Drake said, “Bond and sukuk activity improved compared to the previous quarter of this year, with notable issuances from regional governments such as of Qatar and Abu Dhabi and this is expected to pick up further in the next quarter as the Kingdom prepares its first ever proposed $10bn bond issuance. However, challenging market conditions and uncertainty amongst investors and issuers may impact activity for the remainder of 2016 and a surge in borrowing cost could weigh on market appetite.”
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