Arabian Gulf firms seek funds in IPOs as markets recover

The IPOs signal a turnaround in regional capital markets laid low by the downturn
Arabian Gulf firms seek funds in IPOs as markets recover
CAPITAL: GFH, in its statement to the Dubai Financial Market on Monday, did not say how much capital it plans to raise. (ITP images)
By Bloomberg
Mon 11 Oct 2010 01:36 AM

Arabian Gulf companies are joining a surge in emerging market share sales to raise funds as regional stock markets rebound and companies restructure their debt.

Aluminium Bahrain, operator of an 850,000 metric tons a year smelter, and Nawras, the Omani mobile phone company controlled by Qatar Telecom, announced plans to sell shares in the coming months. Axiom Telecom, a Dubai based mobile phone retailer, is also planning to sell shares, according to a person familiar with the matter.

Fadi Al Said, head of equities, ING Investment Management, Dubai, said: “Markets in the region are less volatile than they were six months ago, which allows a fair valuation for companies planning to list. There are a lot of companies in the region that need to restructure or increase their capital so they can grow their businesses.”

The IPOs signal a turnaround in regional capital markets laid low by the world’s worst recession since the Great Depression and a collapse in property values in the Gulf’s financial bellwether, Dubai. Bond issuance has also increased following the restructuring of Dubai World and an acceleration in economic growth among key trading partners such as China.

Dubai’s government sold $1.25 billion of bonds last month. Emaar Properties, the UAE's biggest property developer, raised $500 million from selling convertible bonds. Qatar Islamic Bank received orders for $6 billion as it sold $750 million of Islamic debt, and Qatar Telecom hired banks for a possible dollar sale.

The last IPO in the UAE was in March 2009 by Green Crescent Insurance, an Abu Dhabi based provider of health insurance products.

The Bloomberg GCC 200 Index of the region’s biggest companies has jumped 11 percent so far in the second half after losing 6 percent since Dubai World announced plans to restructure $24.9 billion in November. The company said last month that it had secured approval from creditors to change the terms on the debt. The region still lags other emerging markets, with the MSCI Emerging Markets Index soaring 21 percent since June 30.

“It’s too early for any real enthusiasm for Gulf Cooperation Council IPOs as there are still some hurdles to overcome, such as third quarter results,” said Julian Bruce, director of equity sales at EFG Hermes Holding in Dubai. The GCC is made up of Saudi Arabia, the UAE, Kuwait, Qatar, Bahrain and Oman.

Bruce said: “We have seen recent large IPOs from BRICs being well received by institutional investors, so if the GCC starts a meaningful recovery, there’s no reason why IPOs here should not be well received too."

The so called BRIC countries are Brazil, Russia, India and China.

Agricultural Bank of China, the country’s biggest lender by customers, raised $22.1 billion in Shanghai and Hong Kong last quarter. Petroleo Brasileiro, the Brazilian oil company, raised about $70 billion in a share sale in September to help fund its $224 billion, five year investment plan.

Share sales in emerging markets outpaced offerings in developed countries in the third quarter for the first time in at least a decade. The MSCI EM’s 21 countries raised $138 billion through IPOs and additional sales, beating the $62 billion in industrialized countries, data compiled by Bloomberg show.

While IPOs have raised $161 billion worldwide in 2010, more than double the amount sold in the same period last year, the number of companies withdrawing or postponing initial sales has increased to 98 from 87 amid concern the global economic recovery is deteriorating, data compiled by Bloomberg show.

Companies in Saudi Arabia, home to the biggest stock market in the region, were the main sellers of shares in the Gulf so far this year, according to Bloomberg data.

Six Saudi companies have raised $765.5 million this year in offerings worth an average of $127.6 million. Jeddah based Knowledge Economic City sold shares worth $272 million, making it the region’s largest IPO. Port operator DP World, a unit of Dubai World, raised $4.96 billion in November 2007 in the Middle East’s largest IPO. That offering was 15 times oversubscribed.

Aluminium Bahrain, owned by sovereign wealth fund Bahrain Mumtalakat Holding and Saudi Basic Industries Corp, hired JPMorgan Chase & Co, Citigroup and Gulf International Bank to manage its share sale planned for as early as November on local and international exchanges. It may sell as many as 163 million shares, and list ordinary stock on the Bahrain exchange and global depository receipts on the London bourse, the company said Oct 5.

Nawras is selling shares for a planned trading debut on Oct 27, in Oman’s first initial public offering in two years. The company is seeking to raise as much as $608 million by selling 40 percent of its shares through a one month book building process.

Axiom Telecom, which is 40 percent owned by Dubai Holding Commercial Operations Group, plans as early as this month to sell 35 percent of its shares, a person familiar with the plan said Sept 22. Faisal al Bannai, Axiom’s chief executive officer, said Oct 7 the company is studying different ways of strengthening its equity base, “including an IPO and other options.” Bannai dismissed as speculation the possibility that Axiom will offer shares this month and added that he was “not sure yet” if the company would list on UAE exchanges.

More IPOs are already planned further ahead. Kuwait Energy Co, an oil and gas company that operates in the Middle East and Eastern Europe, plans to sell shares within nine months, the company said in an emailed statement yesterday. Emirates District Cooling, another Dubai based company, may offer shares by the end of 2011, Managing Director Adib Moubadder said last month.

“UAE markets are lacking depth so it’s important that new companies are added to keep investor interest alive,” said Mohammed Ali Yasin, chief investment officer at financial services company CAPM Investment. “The insurance, banking and real estate sectors are already saturated though, so the markets now need petrochemical, infrastructure and healthcare companies to attract interest.”

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