Initial public offerings have been a strong underlying trend in this economic wonder. Regional issuers have raised $50 billion in fresh funds from 2021 to date in 126 listings. This tidal wave of primary issuances has often bucked the recently weakening global trend. Where do we stand now, and where do we think the regional IPO wave is heading?
GCC IPOs on the global map
GCC listing proceeds totalled $7.7 billion in 2021 across 21 regional IPOs. This tripled the number of operations from the previous year and nearly quadrupled the proceeds. The cycle was characterised by more, larger deals and a renewed appetite for primary market action from local and international investors. KSA and the UAE were leading the regional pack, commensurate with the relative size of their economies and capital markets.
In 2022, the GCC bucked the global trend with forty-eight issuances and $22.9 billion in total proceeds, up three times by value, while global IPO proceeds plummeted by more than 60%. Saudi Arabia maintained its leadership position through a number of deals by welcoming thirty-six new companies onto its local bourse. At the same time, the UAE brought to market almost 55% of total new issuances by value, with around $12.2 billion.
2023 brought a world of slower growth, higher rates, sticky inflation and rising geopolitical tensions, all of which hurt the global IPO market again, which stumbled a further 33%. The momentum of issuances continued in the GCC nonetheless, with forty-seven deals from forty-eight the previous year. However, total proceeds took a hit to $10.6 billion, suggesting a smaller average ticket size. KSA continued to lead by a number of transactions (77%) while the UAE collected 60% of the proceeds, led by ADX.
A sustainable trend?
Equity listings are typically a manifestation of a throbbing economy where capital and appetite are abundant. IPOs must successfully generate a sustainable trend like the one in the GCC. They must be integral to a sound, evolving economic ecosystem and are critical to all stakeholders.
For regulators, IPOs are an instrument at the service of growth. More listings bring more market capitalisation, greater liquidity, and more market activity, which eventually attract more investors and capital if the virtuous cycle functions as expected.
This leads to more capital-market maturity in time, a required pillar for further economic growth. Eventually, most regional stock markets aim to be reclassified as ‘developed markets’ by index providers instead of ‘frontier’ or ‘emerging.’ The IPO bonanza is part of this race.
For issuers, listing allows them to raise funds for future growth, to monetise a long-held stake, or to gain credibility or visibility. In all cases, growth and wealth are often the end game. As wealth benefits the once-private economic agent, it might eventually accrue to the entire economic system. For investors, listings provide new investment opportunities to make quick gains at the onset and much more over the long term if the listed asset truly grows successfully over time.
In the UAE, we estimate that recent IPOs contribute Dh753 billion, or more than $200 billion, to the current aggregate capitalisation. Meanwhile, the blended market performance of local indices since late 2020 comes out to 77%. This means that half the local market growth is attributable to new listings, as per our estimates.
Smooth sailing this year
The UAE stock market has done very well in the past few years, and new listings have been a part of this success. The virtuous capital-market cycle seems decisively in place, with a promising regional IPO pipeline, where more than twenty-nine companies have announced their intentions to float to date.
KSA and the UAE should continue to lead the bandwagon, but we expect that smaller markets will soon want to catch up. Transmission to the private sector has started and should progressively pick up steam. In the absence of a critical event such as a recession, a sustainable market consolidation, or a significant geopolitical event, the path looks clear for a good IPO year in 2024 and beyond.
