GCC IPO market could recover in H2

The GCC is expected to see a modest recovery in initial public offerings (IPOs) in the second half of 2020 after registering just two IPOs during the January-June 2020 period.

Market experts and analysts said Saudi Arabia and the UAE will lead the IPO activity as eight IPOs are expected to be launched by these two Gulf countries in the second half or by early 2021.

"The GCC IPO market remain subdued in the first half of 2020 due to Covid-19 but it is projected to fare better when compared to the first half of this year. It is expected that five Saudi companies will launch their IPOs during July-December 2020 period while three UAE firms may also raise money through IPOs by early next year," experts said.

The optimism, which was witnessed at the start of 2020 after the Saudi Aramco IPO, dented by the coronavirus pandemic and its subsequent effect on oil prices and the equity market. Led by Saudi Arabia, only two IPOs were launched in the GCC during the first quarter, raising $748 million. Dr Sulaiman Al Habib Medical Services Group raised $700 million and Sumou Real Estate Co raised $48 million in March.

"At the start of the year, as many as 16 issues were expected to hit the regional markets. However, due to the ongoing pandemic and persisting uncertainty, most of the companies have shelved their plans," says MR Raghu, managing director of Marmore Mena Intelligence.

Iyad Abu Hweij, managing director at Allied Investment Partners, said the economic uncertainties led by Covid-19 coupled with low oil price clouded the market in the second quarter of 2020, forcing the companies to postpone the IPOs to a better investment climate.

Abu Hweij expects a few more IPOs including Amlak International, Bindawood Holding Company and Hamburgini from Saudi Arabia, Aafaq Islamic Finance, and MAG Development from UAE.

"However, we expect the IPO activities to remain subdued at least till the end of fourth quarter of this year due to the continuing economic uncertainties and many of the offerings to get further postponed. We may also see some state-owned entities in Mena issuing IPOs in the near future. For instance, Egypt had previously planned to offer shares in public-owned companies on the Cairo exchange which the government had to postpone in light of its procedures to contain the coronavirus threat," said Abu Hweij.

"Going ahead, we expect three issues from Saudi Arabia and one from UAE. Amlak International, Ebttikar Technology, Elm Information Security from Saudi Arabia and Seafood Souq General Trading from UAE could likely list in the second-half of 2020," Raghu said.

Zachary Cefaratti, CEO of Dalma Capital, says outlook for regional IPOs is improving and "we are optimistic about H2 2020 and 2021."

"Every crisis also brings opportunities, many regional companies have seized the opportunities whilst institutions have used this time to enhance their capabilities and market infrastructure. We expect exciting announcements later this year that will affect regional capital markets and advance UAE's position as a global financial hub," said Cefaratti.

Raghu said investor optimism and market valuations are the key factors that will determine if the companies would press ahead with their plans. "If the markets could witness swift recovery and the Covid-19 situation remains controlled, we could likely witness robust activity in the IPO space," said Raghu.

He added that in the current environment with low oil prices and prospects of economic recession looming large, any IPO plan, akin to Saudi Aramco, by the GCC government would be put on hold.

Abu Hweij believes choosing the right market timing and lifting the corporate governance practices to world standards will determine the success of GCC IPOs in future.