PwC, a leading international professional services organization, said in its Q3 Capital Markets Watch Report on Sunday that both the IPOs in Q3, 2011 were issued in the Kingdom raising a total of SR821 million ($219 million) — Hail Cement Company SR491 million ($131 million) and United Wire Factories Company SR330 million ($88 million).
Total deal value was down 36 percent or $121 million compared to Q2, 2011 but showed an improvement of 26 percent or $46 million in comparison to the same period last year, the report said.
“I find IPOs in Saudi market are still carrying good opportunities and the market still needs more IPOs particularly in certain sectors like retail, energy and transportation,” Hisham Tuffaha, division head, asset management, Bakheet Investment Group, told Arab News.
“But given the fact of current turmoil in the global equity market, the appetite among investors to invest in new IPOs is not high, which presses the new offering valuation down and does not encourage IPO sellers to offer their share to the public considering the current low valuation for peers in equity market,” Tuffaha added.
Echoing Tuffaha’s remarks, Khan H. Zahid, vice president and chief economist of Riyad Capital, said: The IPO market in the GCC and Saudi Arabia, like global markets, has been down since the global financial crisis of 2008-2009. With low equity prices and great volatility, company owners are not much interested in going public (as they will receive less for their shares than before). The Saudi IPO market, in particular, has not recovered since the great correction of 2006.”
He added that until the recent heating up of the euro zone debt crisis, with share prices rising around the world, many global companies were just beginning to return to the IPO market. But, the Greek/euro zone crisis has again put a damper on that market.
“We do not expect any significant pickup in the IPO market worldwide until we see a clear end to the euro zone crisis. In the GCC, the main hope remains in state-owned companies going public as private owners are highly unlikely to resort to IPOs as long as stock markets are subdued and overly volatile,” Zahid said.
The PwC report also said that in Europe, there were 121 IPOs during the third quarter of the year, raising $12.7 billion. Of the money raised, $6.8 billion came from privatizations in July of government-owned assets in Spain and Poland as well as $3.4 billion from the IPO of Dia, the Iberian discount supermarket retailer.
However, Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said the international IPO market is clearly directly affected by the subdued sentiment and persistent volatility in the secondary markets.
He said the QE2-fueled-rally is over and markets find themselves in an uncomfortable position. The obvious economic ammunition for additional economic stimulus in the West is largely exhausted.
At the same time, Kotilaine said the structural problems persist and there is enormous anxiety about the ability of the EU and even the US to rise to their challenges in ways that will not prove economically highly disruptive.
“This will make for a difficult market environment and deter issuers. During the crisis we have seen a consistent picture across the capital markets of issuers exploring an offering but quickly retreating to the pipeline the moment risk aversion returns,” the economist said.
The PwC report also pointed out that sovereign conventional bond issuances during the third quarter of this year included a $4.2 billion bond issued by the Central Bank of Kuwait comprising a $3 billion bond and $1.2 billion Treasury bond component. As for corporate entities, conventional bond issuances have largely been subdued with Abu Dhabi based Tourism Development & Investment Co. and Dolphin Energy Ltd. deferring debt offerings during the quarter.
Among the noteworthy corporate debt issuances were National Bank of Abu Dhabi’s $124.4 million yen-denominated Samurai bond and $20 million private placement, with the instruments carrying a fixed coupon rate of 2.6 percent and 4.8 percent respectively, the PwC report said.
In his analysis of the market scenario, Kotilaine added: “In spite of its strong economy and favorable growth prospects the Gulf markets are little different. Although the small number of recent IPOs has been generally successful, indeed oversubscribed, they have tended to be fairly modest in size. Even though there is respectable pipeline, there is little sign of a significant increase in issuance activity, although some names will seek to capitalize on favorable opportunities.”
He said the conventional bond market is showing signs of becoming even more challenging because of the waning appetite of Western institutional buyers.
The report said sukuk market continues to grow globally due to an increasing interest in Islamic modes of financing. However, sukuk issuances in the GCC region have slowed down during Q3, 2011 compared to the performance in the first six months of this year, which was dominated by a $9.1 billion sukuk issuance by Qatar Central Bank. Sovereign issuances during the Q3, 2011 included the Central Bank of Bahrain’s $302 million issue, which carries a coupon between 0.7 percent and 0.9 percent.
Among the largest corporate sukuk issuances in Q3, 2011 was First Gulf Bank’s $650 million issue with a tenor of 5 years to be traded on the London Stock Exchange.
Other significant corporate issues during Q3, 2011 included the first publicly listed $480 million corporate sukuk issuance by Saudi International Petrochemical Company on the Saudi stock exchange with an expected return of SIBOR plus 1.75 percent and a tenor of 5 years.
