RIYADH, SAUDI ARABIA — Despite global economic challenges, the IPO activity in the GCC is on the rise, with listings in Riyadh, Abu Dhabi, and Dubai raising about $18 billion in 2022. According to industry stakeholders, this momentum is expected to continue in 2023.
“Although GCC secondary markets were volatile, relative resilience and immunity to global geopolitical events drove passive index flows and index compiler weightings in favor of regional stock exchanges in the GCC, keeping valuations relatively stable for equities from the region,” said Thomas Mathew – Vice President, Investment Strategy and Research at Kamco Invest to TRENDS.
“These drove the debuts of government state-owned enterprises, corporates with idiosyncratic business models, new sectors to the primary market, as the GCC finished 2022 as one of the few bright spots in global IPO markets”, he added.
Rising inflation caused global central banks to raise interest rates in 2022, which impacted secondary equity markets. Furthermore, the overhang from global geopolitical concerns meant that institutional investors added more risk premiums to their valuation estimates.
The MSCI World Index fell 19.2 percent in 2022 as listed equities in most developed markets fell. As a result, IPO valuations and entries dried up in most of the affected markets.
However, the GCC is witnessing the beginning of a much longer trend of stronger growth in the number and variety of IPOs.
Family businesses have grown and evolved over the last few decades. They are increasingly turning to public markets to provide additional growth capital for their companies, whether organic growth or funds for industry niche consolidation. They are also attempting to formalize their operations.
Top IPOs in 2022 • Dubai Water and Electricity Authority (DEWA) has raised $6 billion from its public offering, making it the largest capital markets deal so far in 2022. DEWA’s listing is part of Dubai’s plans to list 10 state-owned entities to increase the size of the DFM to AED 3 trillion, as well as the establishment of an AED 2 billion Market Maker Fund to encourage the listing of more private companies from sectors such as energy, logistics, and retail. • Americana, the largest quick-service restaurant operator in the MENA, is among the companies that went public in 2022. The company raised $1.8 billion from its initial public offering in November and dual listing on the Abu Dhabi and Saudi stock exchanges. • Saudi Aramco Base Oil Company, known as Luberef, is the latest Saudi company to pursue a listing on Tadawul. It has raised more than $1.32 billion from its public offering. • Bayanat, a provider of geospatial data products and services owned by Abu Dhabi-based artificial intelligence and cloud computing company G42, has raised more than AED 628.5 million from an IPO on the Abu Dhabi Securities Exchange (ADX). • Burjeel listed its shares on the Abu Dhabi Stock Exchange after raising more than 1.1 billion dirhams from the sale of an 11 percent stake.
According to Mathew, GCC governments continue to prioritize diversifying away from oil, and IPOs of state-owned enterprises provide additional liquidity for focus areas.
“Private companies are constantly looking to grow and expand into other geographies, and access to and raising capital via a regional IPO additionally helps in publicity, transparency, and corporate governance required to tap those aspirations,” he said.
Furthermore, GCC governments are excellently deepening the region’s capital markets, from ramping up regulatory frameworks to providing leadership for the IPO market by bringing national champions with solid growth and/or dividend yield profiles to the investment community.
This frees up capital for these governments to invest in future projects in accordance with their national vision targets, thereby kicking off the ecosystem for more opportunities for the private sector to participate.
“Commentary from governments, regulator guidance, and the news flow on the IPO pipeline from announced and potential primary issuance candidates in GCC provides confidence to continue the strong IPO listings trend from 2022 into 2023 if markets remain stable as witnessed year to date,” he mentioned.
Most active countries
Increased activity will continue in both Saudi and the UAE, which continue to build their economies and attract foreign investments.
Money was flowing to Saudi and the UAE, especially after Russia’s withdrawal from MSCI’s global market indexes in March 2022.
According to Bank of America, Saudi and the UAE have demonstrated that they have been able to cope with the fallout from Ukraine.
Also, both countries have recorded solid macroeconomic indicators and economic growth. Inflation is much lower than in the US and Europe. So, they have faced different challenges and are implementing structural reforms to grow their economies, attract foreign capital, and increase talent flow.
Moreover, Saudi and the UAE have also taken substantial measures to facilitate IPO operations in their markets in terms of facilitating business and performing IPOs.
“UAE led issuance proceeds in 2022, while Saudi continued the bring the highest number of IPOs into the market. “These two markets will continue to lead the region in 2023,” Mathew predicted.
Estimations
According to Kamco Invest, the pipeline for 2023, based on their estimates, indicated around 27-39 companies have announced and rumored GCC IPO issuances that could debut on primary markets at the start of the year.
“Although the GCC IPO pipeline for 2023 shows potential for healthy activity, the total addressable market for the number of deals is much higher than the region’s exchanges’ 2022 achievements”, Mathew stated. However, issuers are likely to look to the secondary market for more favorable entry points in terms of market stability and valuations. They may take a wait-and-see approach in 2023 before proceeding with their IPO plans.