ABU DHABI, 20 November 2004 — Gulf Arab investors are pouring liquidity from soaring oil prices into equities, with at least a dozen initial public offerings (IPOs) and rights issues ready to hit the region’s market shortly, experts say.
The new issues are likely to mobilize some $3.1 billion this year compared to less than a billion in 2003, according to analysts.
It is estimated that by the end of 2005, some $9 billion will be raised through several IPOs in the six Gulf Cooperation Council (GCC) states of Saudi Arabia, Kuwait, Bahrain, Oman, Qatar and the United Arab Emirates (UAE).
“The high oil prices over the past three years have brought a lot of revenues into the region, and this high domestic liquidity is looking for investment opportunities that are coming in the form of equities,” said Ziad Dabbas, who heads the capital markets group of the National Bank of Abu Dhabi.
“Share dealing has made big leaps across the Gulf states due to high profits of the trading firms as a result of an upswing in the economy, strong oil prices and high public and private spending,” he told AFP.
Some share yields have exceeded four percent, while interest rates on deposits do not exceed 1.5 percent. And the recent IPOs have all been heavily over-subscribed.
In the UAE alone, the IPOs of Amlak Finance, Finance House and Arabian Technical Construction were oversubscribed 33, 78 and 64 times, respectively.
In Saudi Arabia, the Sahara Petrochemical Company’s IPO was oversubscribed 22 times. Ettihad Etisalat Consortium, the second mobile phone operator in the Kingdom, raised $267 million after recently floating 20 percent of its stock.
“The stampede by investors for shares is also to take advantage of record corporate performance and the psychological fears of investing abroad,” said Saudi economist Ihsan Bu Hulaiga.
“The primary market activity has been spurred by the secondary market performances in the past three to four years. Most listed companies have posted impressive profits with healthy returns.
“However, post-Sept. 11 fears still persist and Gulf investors now prefer to invest at home rather than in the US,” he added. Dabbas also said capital flow from GCC states to other markets is very slow.
“There is this sentiment, not only in the Gulf but across the Arab world, about investing in domestic markets. Investors fear their money could at any time be frozen in the US or some other market,” said Dabbas.
Buoyed by the success of the recent IPOs and given the growing appetite for stocks, a string of new IPOs are in the offing. Of these, two in the UAE have already opened - the $18.75-million Salam Bank and $224 million Addar Real Estate Company IPOs.
Two more due to be staged in the UAE before year-end are $300 million by Damas Jewellery and 100 million by Emirates Foodstuffs and Mineral Water.
In early 2005, there will also be the partial sale of Kuwait Finance House, the main Islamic bank in the oil-rich emirate, totaling $1 billion. Also expected is a $400 million IPO by Saudi Arabia’s Al-Bilad Bank.
Next year there are increased opportunities in the Gulf with more IPOs and at least eight planned privatization projects totaling some $2.6 billion set to take place.
State-owned Qatar Gas, Bahrain Telecommunications Co. and courier major Aramex are all selling stakes.
“The resurgence of IPOs in the Gulf markets is the by-product of several factors,” said Lama Abu Ghali, senior capital markets analyst at ABQ Zawya, a Dubai-based financial and stock markets research group.
“The recent economic optimism and strong performance of the Arab stock markets ... has boosted investor confidence in the domestic stock market and increased their appetite for listed shares, including new issues,” she said.
“Secondly, the regulatory changes expected to take place bode well for the future of the IPO market. Gulf markets are awash with liquidity and companies have sensed the sentiments of investors who are starved of investment opportunities. “Hence, we are seeing so many IPOs. And for companies to compete and be well capitalized there is no way but to increase their capital through public issues,” added Abu Ghali.