With stock market in Arab countries tumbling down over the last few months, it was largely predicted that Initial Public Offering (IPO) will revive the stock markets. During the last one and half year strong and sustained positive momentum in regional stock markets had resulted in a flurry of public issue. Regionally IPO activity indicated a strong boost in 2005; nearly $7.4 billion were raised through 35 IPOs in 2005, compared to $3.5 billion in 2004, more than a 100 percent increase. UAE companies were the regional leader in 2005 raising nearly $1.9 billion in 2005, closely followed by Saudi Arabian companies raising approximately $1.7 billion. Egypt with $1.3 billion and Oman with $800 million were other countries with significant IPO activity.
But things took a U-turn in all the major stock markets across Arab countries. From a heady peak of 20,634 points reached during the start of 2006, the Saudi Tadawul All-Share Index has witnessed a more than 30 percent fall and $260 billion slashed from its capitalization with painful losses for hundreds of thousands of small investors. Similarly, the UAE stock market seems to have entered a period of sharp correction and has retraced more than a quarter of its value since the end of June and same trend being witnessed across the various stock markets. All this resulted in few IPO entering the markets in the first half of 2006. The given volatility in local stock markets and a clamp down from regulators has also forced some Arab companies to postpone IPOs. According to Financial Times over 150 companies had planned to list in the two-year period from January 2006, however only 12 have done so this year.
Since January 2006, a total of $4.94 billion has been raised in the Arab stock market through IPO. According to some analysts the forthcoming new IPO will increase number of stocks traded in the markets and attract some of speculative money from the existing listed shares. Recently, in move to bring structure and mitigate the risk of local retail investor, some of the governments in the region have encouraged expatriate retail investors to participate in the stock market.
But the sudden conflict in Lebanon has brought jitters to the markets and IPO issuer. Dubai based, ISO 9001:2000 certified, Gulf Navigation Holding, leader in the shipping and marine services industry was the fist to announce the postponement of its IPO. The public issue was expected to raise $252 million from July 15.
Now there has been a question mark on some of the forthcoming IPOs which are supposed to hit the Arab bourses in the coming months. The total value of the forthcoming IPOs in the next two months is around $1.27 billion, prominent being Saudi Emmar Economic City’s $679 million IPO.
What is going on? As the bourses in Arab markets were picking up after the turmoil of last few months, surely a low intensity war in Lebanon is about to create a destabilizing effect in the markets. Investors in the Arab region will soon discover that investing in public offerings requires much more scrutiny, than the usual company history of operation and a clear value prospect for the capital being raised, unforeseen external risk like Lebanon conflict also affects the IPO market.
