Gulf money stalling tech IPOs

Cash infusions from companies such as SoftBank and Middle East funds are thought to be contributing to a technology startup IPO drought. (Reuters)
Updated 20 October 2017
0

Gulf money stalling tech IPOs

LAGUNA BEACH, California: Big cash infusions for startups from an ever-expanding group of investors, led by SoftBank Group and Middle East sovereign wealth funds, have extinguished hopes that the technology IPO market would bounce back this year.
These deep-pocketed financiers, which have traditionally invested in the public markets but are seeking better returns from private tech companies, have enabled startups to raise more money, stay private longer and spurn the regulatory hassles of an IPO even as they become larger than many public companies.
At The Wall Street Journal D.Live conference this week in Southern California, a number of venture capitalists, entrepreneurs, IPO experts and dealmakers spoke with Reuters about the surprisingly low number of IPOs and pointed to investors such as SoftBank for changing the business of startup financing.
“It’s not surprising if these companies get 10 term sheets,” said Nicole Quinn, an investing partner with Lightspeed Venture Partners, referring to formal offers of investment.
The result is a protracted IPO slump that has contributed to a 50 percent drop in the number of US public companies over the last two decades, according to the Nasdaq. IPOs have fallen especially precipitously since 2014 — the year public market investors, including mutual funds, ramped up investment in private tech companies.
There are some signs of a more active fall for IPOs. Tech companies Switch, MongoDB and Roku have gone public in the past few weeks, with debuts from ForeScout Technologies and Zscaler ahead.
Yet many investors are bracing for a market tumble after a sustained rally, raising questions about IPO opportunities for 2018.
Just 12 venture capital-backed tech companies went public in the US in the first three quarters this year, compared to 27 for the same time period in 2014, according to IPO investment adviser Renaissance Capital.
The drought continues even though both the Dow Jones Industrial Average and Nasdaq Composite are up more than 26 percent in the last year and market volatility is low, normally ideal conditions for an IPO.
Wall Street stock indexes have posted a string of record highs in recent weeks, and the Dow closed above 23,000 for the first time on Wednesday.
But Barry Diller, a longtime dealmaker and chairman of Expedia, said the huge funding rounds had eliminated the traditional reason for an IPO.
“There is no reason to be public unless you need capital, and almost all these companies do not need capital,” Diller said.
Increasingly, the big checks are coming from SoftBank, which in May closed a $93 billion investment fund.
So far this year, it has announced at least 14 investments in technology companies globally, including a $500 million deal with fintech company Social Finance and a $3 billion investment in shared workspace company WeWork, both private and already worth billions of dollars.
SoftBank is in the next week expected to finalize a highly anticipated deal with Uber Technologies in which it, along with other investors, would purchase as much as $10 billion in Uber shares, most of them from employees and existing investors in a so-called secondary offering.
“This is the third liquidity option,” said Larry Albukerk, who runs secondary market firm EB Exchange and spoke to Reuters by phone. “It used to be IPO or acquisition.”
SoftBank’s deals are causing venture capitalists to “prepare for more M&A exits,” and fewer IPOs over the long term, said Jenny Lee, managing partner at GGV Capital.
Meanwhile, Nasdaq’s private market business, set up in 2014, facilitated more than $1 billion in secondary market transactions last year, according to Bruce Aust, vice chairman of Nasdaq.
Secondary transactions allow employees and investors to get some cash by selling to other private investors, removing a significant pressure to go public.
The flood of private capital, and the lofty valuations that have come with it, have, paradoxically, created another reason for avoiding an IPO, said Chris Clapp, a managing director with consulting group MorganFranklin.
“Many times with my clients I don’t think they would achieve the same valuation in the public markets,” Clapp said in a phone interview.
Meal delivery company Blue Apron Holdings took a 27 percent haircut when it went public in June and software company Cloudera lost 53 percent of its valuation in its April IPO.
Snap, the owner of messaging app Snapchat, is down more than 10 percent from its IPO price in March.
— Reuters


Saudi oil refinery in Gwadar to help Islamabad save $3 billion a year

Updated 17 February 2019
0

Saudi oil refinery in Gwadar to help Islamabad save $3 billion a year

  • The refinery would produce up to 300,000 barrels per day once completed
  • Saudi Arabia is also setting up reservoirs for liquified natural gas in Pakistan, says Petroleum Minister Ghulam Sarwar Khan

ISLAMABAD: Pakistan expects to agree a deal to build an oil refinery and petrochemical complex at the Balochistani deep-sea Port of Gwadar, during the first state-level visit by Saudi Arabia’s Crown Prince Mohammed bin Salman.

The deal will see Pakistan join with Saudi Aramco to build the facility, expected to cost $10 billion.

“We are working on feasibility studies for the establishment of the oil refinery and petrochemical complex in Gwadar, and will be ready to start by early 2020,” Pakistan’s Minister for Petroleum Ghulam Sarwar Khan told Arab News on Thursday.

Once established, the project will help the South Asian nation cut its annual crude oil imports by up to $3 billion annually, in addition to creating thousands of job opportunities in the impoverished western province.

The country spends more than $16 billion each year on importing 26 million tons of petroleum products, including 800 million cubic feet of liquified natural gas (LNG) from Saudi Arabia, the UAE and other Gulf countries.

Khan claimed the refinery would produce up to 300,000 barrels per day once completed.

“The Saudi authorities have asked us to complete all the initial work on the project on a fast track, as they want to set it up as early as possible,” he said.

A Saudi technical team, including Energy Minister Khalid Al-Falih, has visited Gwadar twice in recent months to examine the site for the refinery, getting briefings from Pakistani officials on security in the area near the border with Iran.

“We will ensure complete security for Saudi investments and people working on the project. A detailed security plan has already been chalked up with help of the security agencies,” Khan added.

Pakistan currently has five oil refineries, but they can only satisfy half of its annual demand. Islamabad and Riyadh have long maintained strong ties, with the latter repeatedly offering the former financial assistance. Last year, the Kingdom guaranteed Pakistan $3 billion in foreign currency support for a year, and a further loan worth up to $3 billion in deferred payments for oil imports, to help stave off an economic crisis. The Islamic Republic also received $3 billion from the UAE to protect its foreign reserves.

Khan added that the Pakistani-Arab Refinery Co. (PARCO) was also setting up an oil refinery at Khalifa Point, near the city of Hub in Balochistan. 

“The work on this project is at an advanced stage. Land for it has been acquired and other formalities are being fulfilled,” he said.

Khan hopes the world’s perception of Pakistan will change upon completion of these deals, after years of war in the surrounding region. Exxon Mobil returned to Pakistan last month after 27 years, and started offshore drilling with $75 million of initial investments. 

“All results of the drilling are positive so far, and we expect huge oil and gas reserves to be discovered soon,” he said.

“More foreign companies are contacting us to invest in offshore drilling and exploration. Saudi Arabia is also setting up reservoirs for LNG in Pakistan. More Saudi investment will come to Pakistan with the passage of time.”