Saudi Arabia accounts for 75 percent of GCC IPOs
Middle East Paper Company and Saudi Company for Hardware also listed on Tadawul in Q2 2015 raising $120.0 million and $134.4 million
Initial public offering (IPO) performance in the Gulf Cooperation Council (GCC) showed signs of recovery in terms of the number of offerings and total money raised in the second quarter of 2015 compared to the first quarter, suggesting some interest in listing ahead of the traditional quiet holy month of Ramadan and summer period, a PricewaterhouseCoopers report said Sunday.
The most active IPO market in Q2 2015, and during the year so far, was the Kingdom of Saudi Arabia, which accounted for 75% (3) of the total number of IPOs and 87% ($1.0 billion) of total money raised in Q2 2015, according to PwC's Capital Markets and Accounting Advisory Services report.
A total of 4 IPOs were witnessed in the GCC in Q2 2015 with total proceeds of $1.15 billion compared to 1 IPO in the previous quarter of the year raising $185.4 million. The well received and largest IPO in the quarter was by Saudi Ground Services Company which raised a total of $751.9 million and listed on the Saudi Stock Market (Tadawul).
Middle East Paper Company and Saudi Company for Hardware also listed on Tadawul in Q2 2015 raising $120.0 million and $134.4 million, respectively. The Muscat Securities Market saw its first IPO this year by Phoenix Power, owner of Oman's largest power plant in operation, which raised $146.2 million. The offering, which closed in June, was oversubscribed receiving significant levels of interest from investors.
Looking at IPO performance in 2015 year to date compared to the same period in the prior year, although there were a total of 7 IPOs in Q2 2014 compared to 4 in Q2 2015, the total value raised in Q2 2015 was 28% higher compared to the same period in the prior year, which imply improved company valuations. In terms of activity in the first half of 2015 compared to the same period in the prior year, H1 2015 witnessed a total of 5 offerings raising total proceeds of $1.34 billion compared to a total of 9 offerings raising total proceeds of $1.85 billion in H1 2014, a 28% decrease in total proceeds raised and a 44% decrease in the number of offerings. However, the average offering value in H1 2015 was 30% higher than the average offering value in H1 2014.
Steve Drake, Head of PwC's Capital Markets and Accounting Advisory Services team in the Middle East, said: "Despite concerns over regional instability we saw several companies come to market this quarter that had been in the IPO pipeline. The amounts raised demonstrated that there is still equity investor appetite to invest in the right company. We would expect to see this trend continue once the market reopens after the summer period as other pipeline companies come to market.”
He added “it is perhaps too early to predict how the opening of the KSA market to foreign investors will impact the number of IPO's, although we would expect the number to increase over time as foreign investors gain confidence in the KSA market.”
In the UAE we saw a change to the Commercial Company Law allowing the minimum free float percentage be reduced from 55% to 30%. This change was in part to support the IPO market although we are yet to see the impact of this change filtering through to new market issuances."
After global IPO issuance reached record levels at the end of 2014, the IPO market cooled off slightly during Q1 2015. During Q2 2015, IPO issuance improved with quarterly money raised and number of IPOs increasing 54% and 57%, respectively, as compared to the first quarter.
Global IPO money raised stood at $65.0 billion via 390 deals in Q2 2015, compared to $77.0 billion via 325 deals in Q2 2014. Global money raised via Follow-ons stood at $220.5 billion via 984 deals in Q2 2015, compared to $195.1 billion via 829 deals in Q2 2014.
Asia-Pacific was the leading region in terms of IPO activity in Q2 2015, accounting for 55% (213) of the total number of deals and 42% ($27.3 billion) of global money raised via IPOs.
As a result, Asia-Pacific also became the leading region in 2015 year to date, with 55% (351) of the number of global IPOs in the first half of the year and 38% ($41.0 billion) of money raised. The IPO frenzy in China, caused by market reforms and favorable monetary policy, was one of the key drivers behind Asia-Pacific's success.
The GCC bond and sukuk markets activity in Q2 2015 remain relatively sound despite political uncertainty in the region, the debt crisis in Greece and volatility in oil prices. This quarter the market witnessed first time issuers from the likes of Bank of Sharjah and Noor Bank amongst other, as market conditions become more favourable.
The United Arab Emirates was a key player in terms of corporate bond issuances this quarter with prominent issuances such as the $750 million Additional Tier 1 Perpetual Bond by National Bank of Abu Dhabi carrying a coupon of 5.25% as well as the $500 million 5 year bond carrying a coupon of 3.25% by DP World Limited.
Bank of Sharjah issued its first $500 million bond carrying a coupon of 3.374% listed on an international market. This also marked the first conventional bond issued by the Emirate of Sharjah. In terms of sovereign issuances, the Central Bank of Kuwait was an active player this quarter issuing 9 treasury bills each worth $165 million carrying a coupon of 1% or 1.25%, 2 government bonds each worth $579 million carrying a coupon of 0.875% or 0.750%, 5 government bonds each worth $496 carrying a coupon of 0.875% or 0.750% and 3 government bonds each worth $413 million carrying a coupon of 0.75%.
The sukuk market in Q2 2015 witnessed prominent corporate issuance from Saudi based entities such as a $1.07 billion sukuk by Riyad Bank carrying a coupon of 1.99% and a $400 million sukuk by Saudi British Bank carrying a coupon 2.143%. In the UAE, Dubai Islamic Bank PJSC issued a $750 million sukuk carrying a coupon of 2.921% and Noor Bank PJSC issued its debut $500 million sukukcarrying a coupon of 2.788%. The Central Bank of Bahrain was an active sovereign issuer this quarter with 3 Sukuk Al Salam issuances each worth $114 million carrying a coupon of 1.2% and 3 Sukuk Al Ijara each worth $69 million carrying a coupon of 1.25%.
Steve Drake, Head of PwC's Capital Markets and Accounting Advisory Services team in the Middle East region said:
"The risks surrounding Greece and the uncertainty around US interest rates together with the Holy Month of Ramadan and summer period are amongst some of the factors that are expected to have a dampening impact on the debt market over the next couple of months. However, the GCC's solid fundamentals have proven advantageous to the region in the past.
Furthermore, companies are still looking for new financing or refinancing of existing arrangements and therefore we should expect to see issuers going to market from September 0nce investors return from the summer break."
This story was first published in the Saudi Gazette on Aug. 3, 2015.