The MENA region reaches a record level of IPOs.
Global stock markets have suffered heavy losses; but in the Middle East, they are thriving. In December 2022, EFG Hermes, one of the top investment banks in the Middle East and North Africa (MENA) region, reported that Gulf Cooperation Council (GCC) listings accounted for 23% of the $91 billion raised through initial public offerings (IPOs) worldwide, up from only 2% in 2021.
With a record 51 listings raising $22 billion, the number of MENA companies going public more than doubled during a “stellar” year, reports international consulting firm EY in its fourth-quarter 2022 market assessment.
“While the world took a step back due to higher interest rates and the war in Europe, the MENA region took a front row seat,” comments Masroor Batin, CEO of BNP Paribas Wealth Management MENA.
“There are many drivers of this current IPO boom. Investors increasingly view the Middle East as a safe and reliable opportunity as well as a region that is open and eager for business,” says Samer Deghaili, co-head of Capital Financing and Investment Banking MENA at HSBC. The bank reports being involved in nearly all the region’s recent IPOs, helping clients raise over $19 billion in 2021 and over $15 billion in the first half of 2022. “Stronger energy prices have created liquidity that, combined with reform and deregulation in the region that has happened against a backdrop of economic challenge elsewhere in the world, has created an ideal environment for new listings.”
The United Arab Emirates (UAE) and Saudi Arabia are the most active markets in the region in terms of both value and number of deals. Saudi Arabia recorded 13 IPOs and two direct listings in the fourth quarter. IPOs included those of the Al Nahdi Medical Company for $1.4 billion in March, Luberef (formally Saudi Aramco Base Oil Company) for approximately $3.2 billion in December, power and water utility Marafiq for $897 million and tech firm Elm for $819 million. Between the Tadawul and its parallel equity market, Nomu, the kingdom oversaw more than $5 billion in combined proceeds. In the UAE, 12 companies raised $11 billion, including DEWA (Dubai Electricity and Water) at $6.1 billion—the GCC’s largest IPO in 2022. Polyolefins manufacturer Borouge at $2 billion, road-toll system operator Salik at $1 billion, cooling-systems company Empower at $724.1 million and business park operator Tecom at $463 million were the other major deals.
“Large IPOs like DEWA or Aramco’s subsidiary are real assets, making a lot of money, benefiting from the region’s transformation; and investors worldwide want to participate in that. We see capital being allocated where you have real growth optimism for the future, supported by a generally better economic ecosystem,” says Batin.
Privatization of government entities accounts for the biggest deals. Still, this year, private sector companies also joined listings like health care firm Burjeel, which raised $300 million on the Abu Dhabi Securities Exchange; and education platform Taaleem, which raised $204 million on the Dubai Financial Market. A milestone was the region’s first dual listing, with private firm Americana Restaurants floating shares on both the Saudi Tadawul and the Abu Dhabi Securities Exchange for combined proceeds of $1.8 billion. Further agreements have recently been signed to cross-list Saudi Arabia, Oman and Kuwait.
Across the region, the Egyptian exchange also saw remarkable activity last year with a 22.2% gain—the region’s best performance—and listings also took place in Morocco, with Akdital raising $75.6 million and Disty Technologies $16.8 million on the Casablanca bourse; in Oman, with Pearl Real Estate drawing in $60.7 million and Barka Desalination $11.4 million on the Muscat Exchange; and even in Tunisia, where Assurances Maghrebia Vie sold stocks for $14.6 million.
“The evolution of MENA capital markets is fascinating and historic. By floating their assets, Middle Eastern governments are signaling to the world’s markets that they are serious about sustainable growth, transparency, good governance and accountability,” comments Ahmed Abdelaal, group CEO of Mashreq Bank. “These IPOs provide investors with a unique opportunity to participate in exceptionally successful, financially stable national assets underpinned by national growth and a long-term vision for socioeconomic development.”
Profound Changes
Such activity is possible only because most GCC countries have recently enacted reforms upgrading their capital markets to boost private sector growth and attract foreign investment.
Saudi Arabia, the region’s biggest market, opened its main bourse to qualified foreign institutional investors in 2015; it added a secondary market, Nomu, in 2017 before allowing certain strictly qualified non-Saudi institutional investors to buy shares in 2019. Meanwhile, most countries in the region also started allowing 100% foreign ownership of companies, including listed firms.
“We expect the region to continue to play a bigger role in IPOs for the years to come, mostly on the back of the regional transformation plans, Vision 2030 or similar initiatives in other countries, that aim at diversifying the economy away from energy, encouraging the private sector to take a larger role in the economy and supporting the region to play a larger role in the global financial ecosystem,” adds Batin.
Despite efforts by most governments, many Arab bourses are still a work in progress. “Aftermarket performance and liquidity remain a challenge in certain markets, particularly the smaller regional markets,” says Gregory Hughes, partner in Transaction Advisory Services and leader for MENA in transaction diligence, IPOs, and Sell and Separate Solutions at EY. “More work must be done to improve access to the regional capital markets for earlier-stage growth stocks. It would also be great to see more primary, versus just secondary, issuance to fuel the next stage of more companies’ growth via the equity capital markets. Finally, there is a continued push to improve further corporate governance and transparency across the region, which is crucial for the effective operations of the markets.”
Another challenge is that the continuing rise in interest rates in most GCC countries where the local currency is pegged to the dollar might tempt some investors to bet on bank deposits rather than the market, warns EFG Hermes in its latest report. But overall, the outlook for the near future is very positive, with governments privatizing more state assets, corporates using their liquidities and stakeholders looking to sell while the tide is high.
This year’s listings have already started, with Leen AlKhair Trading Company on the Nomu parallel market in Saudi Arabia and Islamic insurance company Beema in Qatar. There are more deals in the pipeline. “GDP growth forecasts for the region will likely result in increased foreign capital flows supported by pegged currencies, paving the way for another successful year for IPOs,” comments Mashreq’s Abdelaal. “On the other hand, we expect valuations to soften from the highs of 2022.”
Local banks play a key role, complementing the client list of global giants with on-the-ground savvy. “You typically need local banks on any IPO. In many cases, the international banks are included to increase distribution and access to their global clients,” adds Hughes.
The UAE and Saudi Arabia will continue to dominate the market with, for example, the Saudi sovereign wealth fund floating shares of portfolio companies; or the Emirati authorities listing more public companies, including subsidiaries of national oil company Adnoc.
Other countries like Oman should also perform outstandingly this year, where major public sector IPOs are expected with energy and infrastructure assets—state-owned OQ’s subsidiaries Abraj Energy Services and OQ Gas Networks. Egypt is also a big one to watch in 2023, with over 20 state-owned companies floating shares, including prominent financial services providers like Banque du Caire, Alex Bank and Misr Life Insurance.
