By Sarah Townsend
PWC’s Q1 2016 market update shows initial public offering market subdued
The IPO market in the GCC has been hit by oil price volatility and the global economic slowdown, remaining sluggish in the first quarter of 2016 with just one company listing in the region, a new analysis shows.
However, despite only one listing over the period, the total value raised in Q1 2016 was two and a half times higher than that raised in the same period the previous year, according to PWC’s quarterly IPO activity bulletin.
The only IPO of the first three months of 2016 was Middle East Healthcare Company (MEAHCO), which offered 27.61 million shares (amounting to 30 percent of the company’s share capital) on the Saudi stock exchange Tadawul, and raised proceeds of $471 million.
The one IPO in Q4 2015, also listing on Tadawul, raised $101 million, just 21 percent of the amount raised in Q1 2016.
Saudi Arabia has been the most active market during the past five quarters, if not the only one, said PWC, and it is expected to remain so in the coming months.
However, the higher value of the only offering in this last quarter shows that investor appetite exists for companies that have the right equity and growth story and operate in defensive sectors such as healthcare and education, said PWC’s analysis.
Steve Drake, head of PWC’s capital markets and accounting advisory services team in the Middle East, said: “The key elements characterising the 2015 capital markets performance related to uncertainty over oil prices and the geopolitical developments in the GCC region, which continued during the first part of 2016. “However, the GCC pipeline for the remainder of 2016 looks promising. IPOs put on hold in 2015 due to regional instability are expected to come back in 2016 as lower oil prices become the norm and are factored into the market.
“Over the longer term we would expect to see positive impacts on the Saudi Arabia equity markets in particular as result of the recently announced government reforms although it is difficult to predict exactly when that might be.
“Similarly, the Capital Market Authority (CMA) desire to increase the number of Saudi Arabia listed entities on the Saudi exchange is expected to have a positive impact on IPO volumes in the medium term.’’
Global IPO issuance also experienced a significant slowdown in the first quarter of 2016, said PWC. The amount of financing raised through global IPOs fell by 66 percent from $50.7 billion in Q1 2015 to $14.2 billion in Q1 2016, making it “the slowest first quarter since the eruption of the financial crisis”.
Meanwhile, the GCC bond and sukuk markets improved in Q1 2016 compared to the previous quarter, with the Central Bank of Kuwait and the Central Bank of Bahrain the most active players in sovereign issuances during this quarter, and the UAE’s ICICI Bank and Kuwait’s Burgan Bank the most prominent issuers of corporate bonds.
Dubai Islamic Bank and the Central Bank of Bahrain were among the most active players in the sukuk market this past quarter, PWC said.