DUBAI, 23 November 2007 — Stock flotations are booming in the Gulf region, spurred by strong economic growth, a wealth of spare cash created by record-high oil prices and government encouragement, market specialists say.
The most recent case, an initial public offering by Dubai port operator DP World, shows the magnitude of demand. The state-owned company said Wednesday it had raised $4.96 billion in an IPO that was 15 times oversubscribed.
The Middle East’s largest IPO ever, it compared with $5.9 billion for all 26 offerings made in the six member states of the Gulf Cooperation Council (GCC) in the first nine months of this year.
“Strong GDP growth averaging eight percent per annum, excess liquidity due to high oil prices, structural reforms by regional governments and privatization initiatives have all contributed to an increase in the number of IPOs,” said Tamer Bazzari, a partner in the Dubai-based Rasmala investment bank.
Before DP World’s IPO, the largest public share offer was made by Saudi Telecom in 2003. It raised more than four billion dollars by selling a 30 percent stake, a third of which went to two public pension funds.
“Saudi Arabia and the United Arab Emirates are at the forefront of IPO activity in the region, having accounted for 70 percent of all GCC IPOs over the last decade,” Bazzari said.
Saudi IPOs in the first nine months of 2007 amounted to $3.7 billion, compared with $1.6 billion in the United Arab Emirates and $389 million in Qatar.
The trend had been growing in the GCC, with total closed IPOs reaching $1.5 billion in 2004, six billion in 2005 and $7.5 billion in 2006, according to Abu Dhabi-based private equity firm Gulf Capital. The region accounted for the bulk of IPOs in the Middle East, which Ernst and Young said No. 87 in 2006 with a total value of $10.8 billion.
“It will continue to grow sharply ... The appetite continues to be high,” said Brad Bourland, chief economist at Riyadh-based Jadwa Investment. “There are about 100 (new) IPOs in the pipeline,” he said, while Gulf Capital said IPOs between 2007 and 2010 should exceed 106.
“Regional liquidity, combined with increasing interest by international investors, is expected to contribute to the success of future IPOs,” Bazzari said.
Gulf oil-producing countries are enjoying handsome windfalls on the back of record-high crude prices, which have pumped huge funds into their economies and jumpstarted multi-billion-dollar infrastructure projects that had been delayed.
Abundant liquidity appears also to face a shortage in investment opportunities as almost all IPOs in the region are over-subscribed.
Early last year, investors from GCC countries slept in tents and cars in Doha as they swamped the Qatari capital for an IPO by Al-Rayan bank. The newly formed lender had offered 55 percent of its capital for $1.13 billion and ended up six times oversubscribed.
In most GCC countries, IPOs are open to both private investors and to institutions, with preference given to nationals.
In the case of DP World, around 65 percent of the shares sold were divided among institutional investors from the region, Europe and the United States.
Enthusiasm for IPOs does not appear to have been dampened by the drop in most of the region’s stock exchanges last year, when the Saudi market lost more than half of its value and Dubai’s exchange dropped by two-thirds from its peak in 2005.
Although trading in the Saudi market was down 19 percent in the first nine months of 2007 despite 20 new listings, according to a Jadwa Investment report in October, Bourland believes this apathy does not extend to IPOs.
“We have to differentiate between the reaction to overall trading and IPOs,” he said. More than 50 percent of companies opting for public listing were concentrated in financial services, followed by around 15 percent in oil and gas and 10 percent each in real estate and transport.
In value terms, Saudi Kayan Petrochemical Co launched the biggest IPO during the first nine months of 2007, seeking $1.8 billion.
The Sharjah-based low-cost carrier Air Arabia also became the first regional airline to go public, raising around $700 million, and stirring speculation that other government-owned carriers might go public.