By Ed Attwood
Gulf bourses need some big names to take the plunge and go public, although why businesses would want to is another matter altogether
If there’s one question you can be sure that a journalist will ask you if you head up a private company in the Gulf, it is likely to be: “so are you planning on listing any time in the near future?”
Having asked this question possibly hundreds of times over the past four years or so, the response, in most cases, tends to be a positive one. When it comes to timings, however, answers are typically a little less exact. “By around 2015” is a standard catchphrase. “Any time in the next three to five years” is another.
But rarely, in the last couple of years, have such aspirations translated into actual IPOs on Gulf bourses. The data makes particularly grim reading. In 2011, the money raised by IPOs in the MENA region reached only $843.9m, a decline of nearly 70 percent on the previous year, according to Ernst & Young. Well over half of that sum came from Saudi Arabia, with the UAE contributing $271m (almost all of which came from the $229m Eshraq Properties listing). Despite Qatar being one of the few bourses on the planet to end 2011 on a positive note, not one single company elected to go public on the Doha exchange.
One might have assumed, given the rosy equities performance in the first quarter, that listing could be back on the agenda. Even given the fact that one quarter does not a rebound make, and that it takes much longer than three months for companies to plan and complete an IPO, there is little indication that listings in the Gulf are getting back to anything like normal.
There were only two offerings in the Gulf during the first quarter - both of which were in Saudi Arabia, which together raised just under $80m.
So what’s going on? One answer, of course, is that what’s going on in the Middle East reflects the wider malaise in global IPO activity. Worldwide listings activity in the first quarter dropped to their lowest levels since the first three months of 2009, according to Ernst & Young. Another reason comes in the form of the disastrous Facebook listing. While it may not have ‘killed the IPO market’ — as some over-zealous commentators have argued — the Facebook fiasco will certainly make many firms think twice about going public.
So what does the market need? In short, it needs some big names to take the plunge — and to take the plunge on Gulf exchanges. Much was made of Qatar Airways’ plans to list as early as this year. But if a company that is as allegedly as profitable and well-run as Doha’s flag-carrier can’t see the benefits of going public, why should anyone else want to tap the Qatar Exchange? The position of NASDAQ Dubai — which now only has two companies’ equities traded (with the largest of them also listed on the London Stock Exchange) — is also a considerable cause for concern.
In a research note issued last week, Daman Investments pointed out that in order to reach the IPO heights of 2007, there would need to be a “whopping 10 times increase in market value traded, however a more realistic target would have to be at least two IPOs a year”.
Daman also stated that “the government should once again play its traditional role of listing key government businesses and thereby triggering primary market activity”.
Any such move on the part of regional governments would be enormously welcomed, particularly at a time of low liquidity on local bourses.
Ed Attwood is the Editor of Arabian Business.
There is another possibility. I have been involved in preparing numerous Saudi companies for IPO, but in two recent cases other sources of finance (trade buyer and private investor) emerged before the IPO got off the ground. There is money around looking for opportunities and good companies can find working with one investor easier than going the IPO route.