Recent changes to business legislation in the UAE are expected to lead to an increase in the number of initial price offerings (IPOs) on the country’s stock markets.
Several new initiatives were launched in the UAE in 2020 with the aim of bolstering IPO activity in the years ahead, according to Ernst & Young, commonly known as EY, one of the largest professional services networks in the world.
Key among these are the amendments to foreign ownership and listing requirements, EY said, adding that the changes significantly alter regulations concerning commercial companies, removing the historical requirement to have 51 percent UAE ownership.
The regulation changes also extend to IPO activity and mergers and acquisitions. The founders of private joint-stock companies may now sell up to 70 percent of their capital by way of a public offering, up from 30 percent previously.
This upper limit, however, may be exceeded with the consent of the UAE’s Securities and Commodities Authority.
“The 2020 amendments to the Companies Law bode well for the overall development of capital markets in the UAE. Increased flexibility in foreign ownership, changes to the nationality requirements of board members and the increase in the proportion of share capital that owners may now sell, to name a few, are expected to lead to an increase in the number of IPO candidates in the emirates,” said Alison Hubbard, MENA law leader, EY Law.
Gregory Hughes, EY MENA IPO and transaction diligence leader, added: “Although MENA IPO activity remained relatively quiet in 2020, several regulators across the region announced positive regulatory changes during the year that bode well for future and existing public companies.
“As we start 2021, there are reasons for renewed optimism, and we see a strong IPO pipeline in key MENA markets and expect activity to pick up gradually during the new year. We have also seen some interest in mergers with US-listed special purpose acquisition companies (SPACs) in recent months following some limited activity in this area in the last two years from the region.”
Their comments come after Al Mal Capital REIT raised $95.3 million and officially listed on the Dubai Financial Market (DFM) in January, the UAE’s first IPO in years.
The issuance was the first REIT listing on the exchange and brought the total number of REIT listings in the UAE to three listings; with Emirates REIT and ENBD REIT being listed on Nasdaq Dubai.
According to a new EY report, the Middle East and North Africa region saw nine IPOs raise proceeds of $1.86 billion last year, a fall of 40 percent in total issuances and 94 percent in total proceeds when compared with 2019.
Out of the nine issuances, six were in the real estate sector, of which two were real estate investment trusts (REITs), with the remaining in the healthcare, consumer staples and insurance sectors.
Despite a subdued annual picture, Q4 signalled a rebound after a quiet Q2 and just one IPO in Q3, with four IPOs in the MENA region raising $925 million in total. Although the number of IPOs decreased by 33 percent and proceeds were down 97 percent compared with the same quarter in 2019, Q4 did have the highest proceeds of 2020.
Globally, IPO numbers continued to pick up with 1,363 IPOs taking place in 2020, a 19 percent rise when compared with the previous year. Additionally, proceeds increased by 29 percent from 2019, rising to $268 billion – the highest proceeds since 2010’s record of $290.2 billion raised via 1,361 IPOs.
Matthew Benson, EY MENA strategy and transactions leader, said: “A decline in economic growth and significant disruption across various industries caused by the Covid-19 pandemic, together with a decrease in demand for oil, had a considerable impact on MENA stock performances in 2020.
“Markets were also impacted at a global level. Market volatility in the first half of the year was higher than at any time since the global financial crisis, although it quickly subsided, and the latter half of the year presented some strong IPO market performances.”
He added: “As 2021 begins, we believe that continued fiscal stimulus measures, an abundance of liquidity and growing confidence in Covid-19 vaccination programs will sustain positive IPO momentum.”
Saudi Arabia continued to have the most active IPO market in the MENA region in terms of both issuances and proceeds. Tadawul was MENA’s top listing venue for the year with four listings totaling $1.45 billion, which represented 78 percent of the total amount raised by MENA IPO candidates in 2020.
The fourth quarter in 2020 was the strongest quarter for IPOs based on proceeds, primarily due to the listing of BinDawood Holding ($584 million), which was the second-largest listing of the year after Dr Sulaiman Al-Habib Medical Services Group Company ($701 million) listed in Q1 2020. Both listings were on Tadawul’s main market.
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