While the regional and international equity markets have generally been depressed post global financial crisis, early signs of recovery are appearing with higher volumes being traded on some of the regional exchanges, and more interest from foreign investors. On the other side, the GCC economies are showing positive signs of recovery across a multitude of sectors, including retail, tourism, real estate and infrastructure.
According to Deloitte Middle East’s first Equity Capital Markets Confidence Survey, “From a trot to a canter?”, the Tadawul (Saudi Stock Exchange), the Dubai Financial Market (DFM) and the Qatar Exchange (QE) are expected to be the most active GCC exchanges over the next 12 months. What’s more, there is a strong pipeline of issuers looking to launch IPOs regionally as well as on international stock exchanges.
The survey, which was conducted through meetings with 30 equity capital market practitioners within regional and international banks operating in the GCC covering the MENA region, covers topics such as the macro-economic environment, valuations, the IPO process and regulations amongst other themes.
“The successful listing of NMC Healthcare and al-Noor Medical on the London Stock Exchange, demonstrates the attractiveness of the MENA region to international investors, providing an alternative for regional issuers outside of the GCC exchanges. It will certainly be interesting to see how the GCC markets will respond to attract regional issuers and foreign investors to regional exchanges” said Adnan Fazli, equity capital markets leader at Deloitte Corporate Finance Limited, in the MENA region.
The survey noted that the sectors expected to drive growth in the GCC include infrastructure, retail, oil and gas, and manufacturing and are likely to attract potential issuers in the foreseeable future.
Over 70 percent of the respondents expect the volume of IPOs in the GCC region to increase in the next 12 months.
Increases in trading volumes are driven in large part by foreign investors seeking a safe haven from socio-political turmoil in the wider Middle East region, which is positively affecting real estate and stock values in GCC countries, especially the UAE.
The announcement by the Morgan Stanley Capital International - MSCI to upgrade the UAE and Qatar exchanges to emerging market status, effective from May 2014, has gone some way in explaining the uplift in valuations.
Challenges typically experienced on IPO processes include mismatch of valuation expectation, lack of readiness on the part of issuer to deal with the IPO process and conforming to listing requirements.
On the IPOs timeframes, KSA IPOs on average took longer to go through the listing process, with almost 90 percent of respondents experiencing a typical process in excess of 12 months, and 23 percent of respondents experiencing over 24 months.
Prospective issuers are increasingly being encouraged to give consideration to engaging specialists earlier in the IPO process to help identify any red flags and therefore minimize delays and overall costs.
This article was first published in Saudi Gazette on Oct. 22, 2013.