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Tue 8 Jun 2010 08:50 PM

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Tight lending seen pushing Gulf family firms to IPO

Companies come from the healthcare, retail, manufacturing and oil services sectors.

Tight lending seen pushing Gulf family firms to IPO
GOING PUBLIC: Dubais Alpen Capital is lead manager for four companies planning IPOs in the Middle East. (Getty Images)

Dubai based Alpen Capital is lead manager for four companies planning initial public offerings in the Middle East, as fractured debt markets and tighter lending restrictions push firms to go public to fund expansion.

The quartet of offerings will come from the Gulf Arab region and India, managing director Sanjay Vig told Reuters, with some likely to be launched in the fourth quarter provided regional markets recover following recent sharp declines.

Vig said: "IPOs normally follow growing equity markets, so once markets start to show positive signs a lot of issuers will come."

He would not reveal the names of the companies Alpen is advising, having received regulatory approval to be a listing sponsor on Nasdaq Dubai, but said they came from the healthcare, retail, manufacturing and oil services sectors.

The IPOs could be primary, dual or secondary listings and could list on any regional bourse, Vig said.

Vig said: "Family business had been using debt to finance their expansion, but post-financial crisis they realise relying on debt could jeopardise the business and so are looking to deleverage their balance sheets, IPOs are one of the equity options to raise money."

Gulf banks have tightened lending after being exposed to the property crash in Dubai and to multibillion dollar debt troubles at two Saudi family firms, while the Middle East IPO market froze in the wake of the credit crunch.

But there are signs of a thaw.

In May, Shuaa Capital said it was lead manager on an IPO that could raise more than 1 billion dirhams ($272.3 million), while India's Hinduja Group said this month it was planning an IPO worth up to $1 billion for a Saudi venture.

Nasdaq Dubai's listing rules, which for example allow companies to float a minimum 25 percent of their capital compared with 55 percent on the Dubai Financial Market, are a key attraction, according to the executive.

Vig said: "Family companies normally don't like to lose management control."

The DFM index is down 16 percent this year and some 76 percent off a January 2008 peak as the emirate's fragile finances weigh on equities, but Vig said these problems would not put off companies from listing on the Nasdaq Dubai.

He said: "The Gulf as a whole is progressing pretty well. Most Gulf economies are forecast to grow more than 3 percent this year and this positive outlook has yet to be reflected on the stock markets. If oil is strong, we should expect an infusion of funds into the Gulf."

Only one stock, DP World, trades daily on the Nasdaq Dubai, which has struggled for liquidity and listings since it opened in 2005, but Vig said the exchange's move to outsource its trading platform to the Dubai Financial Market was likely to boost activity.

If markets recover, investors will also look more favourably on IPOs, Vig said.

He addedd: "Last year, bank deposits were generating pretty good returns, but these have come down significantly this year so investors will be looking at alternatives." (Reuters)

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