Steering clear of the stock markets

In the first nine months of 2008, companies in the Middle East and North Africa raised a staggering $13.1bn from investors in a total of 51 initial public offerings (IPO). As the global economic downturn hit the region, stock markets plummeted and liquidity dried up; so too did this region’s IPO market.

Despite 44 companies selling their shares and listing on regional bourses from 2009 to date, the picture remained just as grim in the first quarter of this year as it did back in the final few months of 2008.

“It’s not like the old days when you go to the markets, get by the regulator and the public will invest and you’ll be oversubscribed ten times. Now you have the regulator saying ‘I don’t want another failed IPO or a withdrawn IPO,’” says Phil Gandier, MENA head of transaction advisory services at Ernst & Young.

IPOs in the Middle East and North Africa plunged 95 percent to their lowest in five years in the first quarter of the year, according to data from Ernst & Young. Regional firms raised just $21.7m in the first three months of the year compared to $420.4m for the same period a year ago as underperforming stock markets and regional political unrest weighed on investor sentiment.

Nine IPOs, which were expected to raise around $4.7bn, were postponed or withdrawn in the Middle East and Africa region during March 2011, the largest monthly estimated volume since October 2008, said Ernst & Young. One of this region’s highest profile casualties was Topaz, the oilfield services unit of Oman-based Renaissance Services, which pulled its $500m listing citing the “increasingly uncertain investment climate”. The firm said it would review the sale later this year.

“If there is one thing that markets don’t like it is uncertainty so people are waiting to see how that develops before ploughing ahead. People aren’t really going into the market because they know investors are uncertain about the future and want to see how things settle out,” says Christopher Laing, managing director, head of MENA equity capital markets at Deutsche Bank AG.

The Arab Spring has brought with it plenty of uncertainties. As thousands of people marched in anti-government protests across the Middle East, regional stock exchanges plummeted. The market capitalisation of sixteen Arab bourses lost $140bn from January 25 to March 4, according to a report by the Arab Monetary Fund. Even countries that haven’t been affected by mass demonstrations have seen volumes decline; Casablanca Stock Exchange’s volume is down approximately eleven percent so far this year, its chief executive told Dow Jones last week.

Political unrest might be unique to the Middle East but it is by no means the only factor deterring companies from listing. Japan’s earthquake and subsequent nuclear panic has plunged the country back into recession while Greece, Ireland and Portugal have all been forced to turn to support from the EU bailout fund. So far this year, 96 IPOs have been pulled globally, 21 of which were post-launch, according to Dealogic.

“Markets in certainly this time zone, Europe, Middle East and Africa, have been very choppy this year so while there has been a lot of IPOs launched, only about half of them have successfully made it to the finish line in Europe. We have seen some very large deals fail,” says Laing. He adds that in Russia only five out of nine deals have been successfully priced, all of which are now trading below market value.

Non-starters in Europe include Russian Helicopters, which was forced to postpone its $500m dual listing in Russia and London, and the online payments company, Skrill, who cancelled its $260m in April, citing poor market conditions for new issues.

Analysts have, however, suggested that it might not be all doom and gloom. Several successful IPOs in the second quarter of the year indicate that the market could be looking up. The Swiss commodity trader Glencore International raised $10bn in its IPO in May, the biggest so far this year. Regional investors included Abu Dhabi’s sovereign wealth fund and the Saudi billionaire Prince Alwaleed.

Closer to home, the UAE’s first IPO in over two years saw Abu Dhabi’s Insurance House raise $18m in March (though it only reached its threshold hours before its deadline) while the Middle East Exchange Company in Syria raised $3.1m.

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