Equity valuations and government-sponsored maiden offers will be the key to the initial public offerings (IPOs) in the Gulf Cooperation Council (GCC), according to a report.
“Corporates in the GCC IPO market are expected to wait it out, and look for better macroeconomic data points to be visible before entering the market,” Kamco Investment Company said in its report.
The corporate issuers would likely look for leadership from larger issuers in terms of activity, to confirm positive trends for floatation, it said, highlighting that issuers are likely to look at equity market valuations and market performance in early 2017, while firm future timelines from government-sponsored entities such as Aramco should provide much needed confidence for corporate issuers as well.
The silver lining in the GCC public issuances market was the listing of two Real Estate Investment Trusts (REITs) in the fourth quarter of 2016. Riyad REIT, launched by Riyad Capital, which was capitalised at 500mn Saudi riyals and was listed in November-16 in Saudi Arabia, realised an upper circuit limit of a 10% daily return on Day 1 post the listing, and finished the year up by 8.2%.
Eskan Bank Realty Income Trust from Bahrain which was undersubscribed by 5%; traded on January 2, 2017 at a price of 0.107 Bahraini dinars per unit. The UAE, Bahrain and Saudi Arabia have REIT regulations in place, while Qatar and Kuwait’s regulatory authorities are yet to issue regulations for the development of listed REITs.
The first IPO recorded in 2017 came from Qatar, as Investment Holding Group looks to garner around QR491mn at a pricing of QR10.1 per piece in January 2017.
The IPO market in the GCC halved in 2016, after witnessing muted activity in 2015, and trends exhibited during the year was the lowest seen in 15 years. Total corporate IPOs/listings in the region fell year-on-year (y-o-y) to three issuances from six deals witnessed in 2015.
“Corporates looking to enter the market preferred to stay on the sidelines, and were met with periodic surprises throughout 2016. The surprises, mostly event related, included the Brexit outcome and US presidential election results, along continued volatility in oil commodity markets up until the Organisation of the Petroleum Exporting Countries’ agreement was reached on a production cut,” it said.
All corporate IPOs listed in the GCC during 2016 remained “oversubscribed”, with Yamamah Steel receiving the maximum response from investors, as the issue was oversubscribed by 4.8 times. L’azurde Company for Jewelry received significant positive response as well, as the issue was oversubscribed by over 2.9 times, followed by Middle East Healthcare Company from which saw its IPO being oversubscribed by 2.7 times.
Despite the volatility, Saudi Arabia remained the only active GCC IPO market in 2016, as it saw all three of the region’s corporate IPO deals listed on its exchange. In terms of individual country contribution to overall GCC IPO activity, Saudi Arabia continues to be the most important contributor.
Despite the overall slowdown in activity in the region, Saudi Arabia contributed to 68% of the IPOs since 2006 and also contributed to an average of 5 deals per year over the past five years, it said.