Arabian Gulf investors shun IPOs as Asia sets record

Companies in GCC aren't benefiting from record demand for share sales in emerging markets
Arabian Gulf investors shun IPOs as Asia sets record
TRADE DROP: The volume of shares traded in Dubai, Abu Dhabi and Oman is less than half what it was a year ago (Getty Images)
By Bloomberg
Wed 24 Nov 2010 08:38 AM

Companies in the Arabian Gulf aren’t benefiting from record demand for share sales in emerging markets as debt concern hurts investor confidence.

Omani mobile-phone operator Nawras and Aluminium Bahrain, the operator of an 850,000-metric-ton-a-year smelter, sold shares this month at the bottom of the range used to canvas investor interest in the stocks. The six-member Gulf Cooperation Council region generated $1.91bn of initial public offerings this year, compared with $2.27bn in the same period a year earlier, data compiled by Bloomberg show.

The region’s benchmark Bloomberg GCC 200 Index has gained 9.1 percent this year, compared with a 9.9 percent increase for the MSCI Emerging Markets Index. The average number of shares traded daily in Dubai has dropped 65 percent from the year- earlier period. By contrast, the pace of IPOs in Asia has climbed to a record since the crisis.

“It’s a chicken and egg situation,” said Mohammed Ali Yasin, chief investment officer at Abu Dhabi-based financial services company CAPM Investment. “With equity markets still struggling, it’s difficult to attract investors for IPOs, but then you need new offerings to stimulate the markets.”

The volume of shares traded in Dubai, Abu Dhabi and Oman is less than half what it was a year ago. It’s down 47 percent in Qatar, 43 percent in Saudi Arabia and 25 percent in Kuwait. Dubai’s economy is still struggling to recover from a 2009 slump amid concern that government-owned investment entities won’t be able to refinance loans used to finance a real-estate boom.

Axiom Ltd., a Dubai-based mobile-phone retailer, on Nov. 21 set a price range of 80 cents to $1.15 for the sale of as much as 35 percent of its shares to institutional investors in the UAE’ s first IPO in almost two years.

“Looking at the overall market sentiment where retail investors are still nervous, we felt that there would be enough demand just from institutional investors,” Axiom Chief Executive Officer Faisal Al Bannai said.

The 200 companies listed on the Gulf’s benchmark index are trading at 16.3 times earnings, according to data compiled by Bloomberg. That compares with 15 times for Dubai’s index and 14 times for the MSCI EM Index.

Still, “appetite is improving albeit slowly,” said Shehzad Janab, head of asset management at Dubai-based Daman Investments PSC. “The region is definitely on the radar screen for debt investors. It’s only a matter of time before the same holds true for institutional equity investors.”

Kuwait Energy Co., an oil and gas company that operates in the Middle East and eastern Europe, plans to go public in the next nine months, the company said Oct. 10. Emirates District Cooling, a Dubai-based provider of central air conditioning, may offer shares by the end of 2011, Managing Director Adib Moubadder said in October.

Their success may hinge on how shares of Nawras and Aluminium Bahrain perform after their IPOs. Mazaya Qatar Real Estate Development Co., which raised $137.4 million in a stock sale in January, dropped 8.9 percent since the stock started trading in Doha on Oct. 17.

“Investors are really sensitive about valuations and won’t pay any price no matter how good the company is,” Fadi Al Said, head of equities at ING Investment Management (Dubai) Ltd, said. Aluminium Bahrain and Nawras will “set the tone for the upcoming pipeline of share sales,” he said.

Aluminium Bahrain, owned by sovereign wealth fund Bahrain Mumtalakat Holding Co., raised $339m after going public at the bottom of the 0.90 dinar to 1.25 dinar range used to sell the stock to money managers. Nawras, which is controlled by Qatar Telecom, sold shares for 702 baisas each, also the bottom of the range, after taking an additional week to find buyers for the shares. Nawras shares have gained 3.4 percent since the shares started trading on November 1.

Companies in Asia are finding it easier to raise money through IPOs. Hong Kong’s AIA Group Ltd. and Coal India Ltd. raised almost the same amount in October as the total from U.S. equity sales in the first 10 months of 2010. Offerings from Malaysia’s Petronas Chemicals Group Bhd. and Australia’s QR National Ltd. this month contributed to the $158bn raised in the region in 2010, according to data compiled by Bloomberg.

“Middle East and North Africa equities are depressed compared to emerging markets,” said Julian Bruce, director of equity sales at EFG-Hermes Holding SAE in Dubai. “The GCC has not fully recovered from the financial crisis, which will have a dampening effect on IPOs.”

Dubai racked up $109.3bn of debt to transform the emirate into a tourism, trade and financial-services hub, according to International Monetary Fund.

Dubai World, one of the emirate’s three main state-owned holding companies, roiled markets worldwide last year after saying it would seek to delay repayments on its debt. Saudi Arabia’s Saad and Algosaibi business groups defaulted on at least $15.7bn of loans last year. In September, Dubai World’s creditors agreed to alter the terms on $24.9bn of the investment company’s debt.

“The retail investor is still suffering from the credit crunch of 2008 and the hit they took to their net worth is still fresh in their memories,” said Saad al Chalabi, an institutional trader at Al Ramz Securities in Abu Dhabi.

Before the financial crisis, economic growth and record- high oil prices spurred a flurry of share sales. Port operator DP World Ltd., 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.

“We’re definitely keeping current market circumstances in mind,” Axiom’s Al Bannai said. “We have positioned the price at an extremely attractive level.”

 

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