ABU DHABI, 16 October 2006 — This year will set another record for initial public offerings (IPOs) in the GCC, according to Gulf Capital Research, with total money raised expected to exceed $8 billion by the end of the year. Despite the regression of the stock market in general, demand for IPOs remains strong and is expected to maintain its momentum in the short-term at least.
Gulf Capital Research revealed that the total amount raised in 17 IPOs in the first nine months of 2006 has exceeded $6.2 billion, which is 45 percent more than the same period in 2005. In the third quarter, four new IPOs raised a total of $1.7 billion, exceeding the $1.5 billion raised in the second quarter this year. “The Emaar Economic City” and SIPCHEM were particularly large IPOs by GCC standards, and raised $680 million and $660 million, respectively. The other two IPOs were Gulf Navigation of the UAE and the Saudi Red Sea Housing Services.
Imad Ghandour, head of research and strategy at Gulf Capital, said: “Demand for new offerings by regional investors continues to outstrip supply and all IPOs were oversubscribed by several folds. However, oversubscription rates have fallen dramatically from the astronomical heights witnessed in 2005 and all IPOs in the third quarter will be less than 10 times oversubscribed — a stellar achievement still by international standards.”
Not surprisingly, Saudi Arabia, the biggest GCC market and economy, remains the most active IPO market with more than $2.3 billion raised in the first nine months of 2006. The UAE and Qatar markets were also active and raised $1.4 billion and $1.3 billion, respectively. The Bahraini IPO market was uncharacteristically active in 2006 with $1.0 billion raised compared to only $6 million in 2005, and this was mainly due to the IPO of three Islamic banks targeting the Saudi market.
There is a long queue for new companies inspiring to launch an IPO. According to Gulf Capital’s latest statistics, no less than 134 companies are actively preparing themselves to go public. It is uncertain how many will pass public regulators’ scrutiny or will receive the attention needed from investors. The stock market is raising the bar for new IPOs as the average size of IPOs has increased from $284 million in 2005 to $363 million in 2006.
According to Gulf Capital, as the average size raises, investors and regulators alike will tend to reject new issues unless they are of a certain size. The minimum company valuation for a public offering is expected to be more than $200 million in Saudi Arabia, and this threshold is expected to increase in the short-term as a result of market dynamics and regulatory priorities. Similar trends have been detected in Qatar and the UAE.
“The positive momentum for new IPOs will continue into 2007, although investors will be more discerning and scrutinizing. Going forward, the astronomical oversubscription levels witnessed in the IPOs of 2005 will be the exception rather than the norm, but demand will continue to outstrip supply for the foreseeable future. IPOs will remain a good investment and are expected to outperform the general market,” Ghandour said.