GCC Q1 IPO markets are at five-year highs
The IPO market in GCC countries (GULF) touched a five-year high in Q1 2017 with 10 new IPO launches. As per a PwC report, the largest was Investment Holding Group (IHG) which raised $138 million on the Qatar Stock Exchange. This was the first IPO in Qatar (QAT) since 2014. The second and third largest IPOs during the quarter were Al Jazira Mawten REIT (ALJAZIRA.AB) and ENBD REIT (ENBD.DU) that were listed on the Tadawul stock exchange (TASI.SR) and Nasdaq Dubai (DUAE.L) respectively. These IPOs raised $31 million and $105 million respectively.
Steve Drake, Head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East stated, “As the region continues to adjust to a different oil price environment, we are starting to see signs of market recovery and activity which are positive indicators to what we hope to be an improved year for IPOs in the region. Furthermore, government initiatives across the region, including large scale privatization activity is expected to boost capital markets activity in the next couple of years.”
Is the tide turning for GCC IPOs?
In the past few years, GCC economies have been pressured by fiscal deficits, low oil prices and slowing economic growth. These countries are now seeking to raise capital through privatizations and IPOs to meet the shortfall in their budget deficits.
In 2016, only 3 public issues were launched in the entire calendar year, while capital issuances fell by 50% from the $745 million mark seen in 2015. However, all three IPOs last year were oversubscribed indicating that investor’s appetite did still exist for growth companies that have the right valuations.
GCC governments have also been promoting capital markets activity by implementing a host of stimulative measures. Saudi Arabia (KSA) announced a number of efforts to promote participation by foreign institutional investors and implementation of a new settlement process as part of its strategy towards inclusion in the MSCI emerging markets Index (EEM). Additionally, Saudi Arabia also launched a parallel trading platform “Nomu” to offer lighter listing requirements for SMEs.
Experts expect IPO launches to pick up in 2017 as oil prices stabilize and investor sentiment improves. GCC governments plan to divest their stakes in some state owned energy companies to raise funds that could lead to a flurry of IPOs. Many family run businesses such as Massar Solutions, Senaat, Jannah Hotels and Resorts, Gulf Capital and Tasweek Real Estate Development are planning to list their shares in Abu Dhabi while Al Shafar General Contracting, Daman Investments, Emirates District Cooling, Al Habtoor Group, Emaar Hospitality Group (4220.SR), Mawarid Finance, Rivoli Group and Able Logistics Group are planning to launch IPOs on Dubai’s stock exchange.
Saudi Arabia’s Aramco IPO would likely boost overall sentiment for GCC IPOs among foreign investors and encourage countries like UAE (UAE), Kuwait and Qatar (QAT) to eventually list parts of their state-owned energy companies as well. Apart from Aramco, Kuwait also plans to divest shares of Az-Zour North Independent water and power project through an IPO in mid-2017.
Upcoming Oil & Gas GCC IPOs To Track
- Aramco, the Saudi Arabian state-owned oil company, is planning to sell 5% of its stake through a $100 billion IPO. This would be the largest IPO ever giving Aramco a valuation of $2 trillion, significantly larger than heavyweights Exxon Mobil, Apple and Alibaba. Although the actual listing may still be 2 years away, it is pushing other GCC countries to consider making the most of the opportunity by listing their companies.
- Kuwait Energy, Oil and gas Exploration Company is planning to list its shares on the London Stock Exchange, a first for Kuwait. The company expects to raise $150 million from this IPO, filed for an IPO in May 2017, and is expected to be valued at $1 billion after going public.
- Abu Dhabi’s state owned oil company, Abu Dhabi National Oil Company (ADNOC) plans to list its retail business in an IPO on the Abu Dhabi Stock Exchange by the end of 2017. As per Bloomberg reports, the company could achieve a valuation of $9 billion, and as much as $14 billion after the IPO. The company is expected to raise $1.5 – $2 billion from the public listing.
- Oman, the largest Arab oil producer outside the Organization of Petroleum Exporting Countries is planning to divest some assets of its state owned energy company – Oman Oil Co. The company is in talks with banks to list its shares on the Oman Stock Exchange.
Historical performance of energy stocks after their IPOs
Shares of energy stocks from the GCC countries have surged 178% on average since their public issuances.
National Gas – the Oman based LPG company is up nearly ten times since its listing on the Muscat Stock Exchange in 1989, while Qatar Fuel (QFLS) is up 9.4 times since its listing in 2003. Market caps of these companies have grown 3.5 times and 7.8 times respectively. Price to earnings ratios of National Gas have declined 27% but that of Qatar Fuel is 136% higher since its IPO.
Polarcus (PLCS) and Burgan Drilling have been the worst performing energy listings with shares down 100% and 79% since their public issuances in 2009 and 2005. Polarcus is a UAE based marine geophysical company while Burgan Drilling is a Kuwait based company engaged in drilling, exploration and development services for oil and gas companies.
Since 2010, the S&P GCC Index (SPGGCDLMN) is up 14.7% while the MSCI GCC Countries Index has gained 17.7%. Comparatively, energy stocks in GCC countries have outperformed. The Bloomberg GCC Energy Index has gained 9.3% while the S&P GCC Large & Midcap Energy Index has surged 58.2% during the same period.