2022: Another buoyant year for GCC IPO markets?

Around the world, 80 percent year-on-year growth in IPOs saw 3,146 new listings that raised a total of $388 billion, with the EMEA region recording a staggering 211 percent year-on-year growth in new listings.

However, Q2 2022 has seen global growth rates softening due to prevailing volatile market conditions. An exception is the GCC IPO markets, which continue to see an uptick in activity levels primarily driven by large government listings in a boost to liquidity.

While major markets struggle under the weight of high energy prices, high inflation, Russia-Ukraine geopolitical tensions and supply chain disruptions, the GCC region has largely remained immune, demonstrating economic and political stability, and even benefiting from the increase in energy prices.

In 2021, the GCC saw the launch of 19 new IPO listings, representing a growth of 111 percent compared to pre-pandemic levels. The cumulative proceeds from GCC issuers were five times higher than in 2020, reaching $7.52 billion, up from a total of $1.64 billion in the previous year. Saudi Arabia has been leading the region’s new listings with 37 IPOs since 2019.

The kingdom had a record year for IPOs in 2021, with 15 listings that accounted for 60 per cent of new issuances in the region across its main and secondary markets. With three new listings in 2021, the UAE was the region’s second most active IPO market.

The growing investment appetite of retail investors is evidenced by the significant oversubscription of the retail tranches of recent 2022 IPOs. The DEWA IPO was overall oversubscribed by 37 times and the retail offerings of the Bourouge and Al Nadhi Medical IPOs were oversubscribed by 74 times and 13 times respectively.

Previously, access to IPO subscriptions was primarily the domain of institutional and accredited investors only but retail participation has been made possible by the emergence of zero-commission trading apps and competition-driven lower commissions charged by regional brokerages.

Key contributing factors to how attractive these oversubscribed listings have been are the dividend yields offered by new issuers and the potential value creation for shareholders via the use of IPO proceeds.

For example, the estimated dividend yields of 5 percent for DEWA and 6.5 percent for Borouge, and their proposed growth plans at the time of the issuances, helped to stimulate both international and local investor interests, enabling the successful closure of these IPOs.

To date, there have been 50 IPOs in the GCC region, including TECOM Group’s IPO that debuted on the Dubai Financial Market on July 5. Of these listings, 98 percent were floated in regional stock exchanges, while only 2 percent have chosen to go to an overseas exchange.

It is noteworthy to highlight that 100 percent of the IPOs listed since 2021 have selected their respective regional stock exchanges to float, demonstrating increased confidence in the liquidity of these markets.

As the GCC continues its ascent to becoming one of the top hotspots for foreign investment, global firms, such as Blackrock, Fidelity Investments and Vanguard Group, who took part in the DEWA IPO, have stepped up their interest in the region, and the India-based Adani family took part as a key cornerstone investor in the recent Borouge IPO.

With local governments, notably in the UAE and Saudi Arabia, liberalising investment regulations, such investments are likely to grow, in conjunction with reforms in other areas, such as visas and community regulations.

The pipeline for the region’s new listings reflects the increased appetite for IPOs. Saudi Arabia’s stock exchange reportedly has 50 applications for IPOs in 2022. Dubai announced its plans to list ten government and state-owned companies, and Abu Dhabi Securities Exchange is expected to list 13 more listings this year.

The next big thing in the region’s IPO space could be family group listings.

Traditionally resistant to opening their books to outside investors, family groups, incentivised by governments, are now looking at IPOs as the next phase of their business to drive increased governance, business continuity, capital diversification, international expansion and family planning, as the recent listings of Almunajem Foods and Al Nadhi Medical have shown.

Such listings can also provide a source to raise capital through the issuance of different share classes so that they may retain control of the business through super-voting shares or greater weighted shares.

With a plethora of factors to boost the market, optimism is high among investors in the GCC, and rightfully so. While caution is always required in such situations, the general belief is that regional markets are now more ready than ever to demonstrate their commitment and capability to compete with some of the biggest markets around the world.

A combination of healthy government reserves, higher oil prices and robust foreign relations have meant that governments in the region have a variety of tools to mitigate any immediate risks.

Salmaan Khawaja is a Partner, M&A and Transactions Advisory at Grant Thornton UAE.