RIYADH, 11 December 2006 — Despite the fall in GCC equity markets, IPOs (initial public offerings) have done well. And despite the small number of total IPOs in Saudi Arabia in 2006, it is half of total IPOs in the GCC. The latest offerings held in December will bring the total IPOs in Saudi market in 2006 to 11, while the total IPOs held in GCC in 2006 totaled 23.
The total number of IPOs in 2006 were the same in 2005, but the average size of offering has grown to $363 million from $262 million (according to MEED). IPOs in the Gulf region were estimated to be oversubscribed by an average of 98 times in the first nine months of 2006. In Saudi Arabia, IPOs are estimated to be oversubscribed for the months January-November by 41 times, which shows the big appetite of investors despite the continuing fall in equity markets.
All indicators show that a massive increase in initial public offerings on the GCC capital markets with total amounts to be exceeding $13.5 billion in 2006, more than twice the $6.2 billion rose in 2005. It is also expected that more than 154 IPOs will be launched in the GCC market during the next three years.
In the meanwhile, other developing countries, like Russia, Brazil, Egypt, Greece, India, Israel, Kazakhstan, Malaysia, Poland, Saudi Arabia, South Korea and the UAE — each hosted more than $1 billion worth of IPOs in 2005 and the trend in set to be repeated in 2006, according to a recent Ernst & Young report. India has evoked lively investor interest and will continue to do so. While the amounts raised fell from $2.9 billion in 2004 to $2.3 billion in 2005, reflecting fewer privatizations, numbers of transactions surged from 21 to 53.
Many Indian IPOs have been oversubscribed 20 to 30 times in a market that has scaled record levels. In Latin America, Brazil saw an increase in both the amount of capital raised — up 48 percent to $1.8 billion in 2005, and the number of transactions — up 20 percent on 2004. Brazilian companies currently account for one-third of all Latin American listings on the New York Stock Exchange.
The bottom line is, emerging markets like the GCC, are ready and fit to have a big number of IPOs during the coming years. This will enhance their financial markets and economic growth and make them more attractive for foreign investors.
(Khan H. Zahid is chief economist at Riyad Bank. He is based in Riyadh.)