Thinking about going public? The Middle East has space on the list.
While Western nations are still on their way out of a listing drought, Gulf Cooperation Council (GCC) states maintain an initial public offering (IPO) bonanza, raising $10.79 billion from new listings in 2023, Markaz reported. This rush to the market is expected to remain strong, continuing well beyond the 2024 and 2025 financial years.
“If you look at the track record of the region in terms of capital raising, it’s been phenomenal,” said Hamed Ali, CEO of Dubai Financial Market (DFM), during the Capital Markets Summit in May. “The majority of bankers would summarise the past few years saying this is a ‘buzzing market’. When bankers tell you that, it means there is business for them to be done in this part of the world.”
Why IPOs? The region’s interest in capital markets and encouraging initial public offerings comes from a governmental push towards privatisation that aims to strengthen the region’s business landscape, fostering a flourishing environment for entrepreneurs looking to raise capital and foreign investors wanting to invest in emerging markets such as the Middle East.
The IPO pipeline
GCC IPOs raised a combined $22.9 billion through 48 listings in 2022, a time when global IPO proceeds plummeted by more than 60%. The following year the region saw 45 listings, albeit smaller ones, raising a total of $10.6 billion, according to Markaz data. The UAE led the way with 54% of total IPO proceeds, amounting to $5.5 billion from seven offerings, while Saudi Arabia recorded the highest number of transactions, at 77%.
“If you look at the track record of the region in terms of capital raising, it’s been phenomenal”
Hamed Ali
“We are seeing more private companies coming public, which is fantastic,” noted Rudy Saadi, Managing Director of Equity Capital Markets at Citi. “The IPOs are being priced well and performing very well.”
The first quarter of 2024 has seen a continuation of companies’ desire to go public, with the MENA region recording 10 IPOs raising a cumulative $1.2 billion and nine of the listings taking place in Saudi Arabia, as per EY. At the end of the quarter, eight out of the 10 MENA IPOs had a positive return compared to their IPO price, with entertainment giant MBC Group achieving the highest gains, at 128%. Meanwhile, Dubai’s public parking company Parkin raised the highest proceeds in the region in Q1 2024 at $4 million, contributing 37.2% of the total IPO value.
“Parkin’s story is aligned with Dubai’s economic growth and population expansion,” explained Mohamed Al Ali, CEO of Parkin, stressing the importance of connecting with the right investors, as key to the company’s positive after-market performance. “The demand is almost always greater than the supply,” he added.
Looking at the rest of 2024, the pipeline remains strong. MENA exchanges are scheduled to list an additional 25 private companies and 10 funds across various sectors, according to EY. Saudi Arabia continues to lead with 21 announced IPOs, followed by the UAE with one. Outside of the GCC, Raya Information Technology in Egypt and Crédit Populaire d’Algérie in Algeria have announced their intention to go public within the next six months.
The secret to success
What makes or breaks a listing? The GCC IPO story is not only one of constant listings but also one where the companies that decide to go public continue to perform in the market, showcasing an average 40% return to investors. Saudi Arabia’s MBC Group alone raised $221.6 million through the sale of a 10% stake in Tadawul last December. Successes like MBC’s have prompted companies to follow their lead.
“Today, investors are looking for resilient growth,” Adena T. Friedman, Nasdaq CEO, told attendees at the Dubai Fintech Summit. “They are going to levitate to companies that have that characteristic when they’re considering IPOs.”
In a conversation between the chief executives of Parkin and Spinneys, the first two IPOs of the UAE in 2024, the executives highlighted a series of aspects that helped cement the success of their respective listings. These included crafting a strong story, engaging the right investors, selecting supportive partners and carefully considering the price range and valuation of the listing.
“In my experience, a simple and straightforward equity story sits well with investors, especially retail”
Mohamed Al Ali
“In my experience, a simple and straightforward equity story sits well with investors, especially retail,” added Parkin’s Al Ali, highlighting how the region is moving away from seeing dividend yields as the key metric to measure company valuations to transition towards free cash flows; an evolution that has benefited both Parkin and Spinney’s IPOs.
“We were 64 times oversubscribed and that tells the story of this region, particularly Dubai and the UAE,” said Sunil Kumar, CEO of Spinneys. “It is proof that everybody is looking toward this region.”
Will US IPOs return?
The Middle East’s capital markets thrived during the 2021/22 cycles, becoming “bright spots” in an otherwise “quiet” couple of years, according to PwC analysts. The GCC region benefitted from a strong governmental push, high interest rates and the decrease in listing activity in Europe and North America. Nonetheless, the Western markets have awoken from their slumber and begun preparing for a strong comeback in 2024, or even 2025.
“We have about 80 companies on file to go public on Nasdaq,” Friedman said. “We are starting to see some IPOs come out that are quite successful, and I think that’s giving people more confidence to tap the public markets. So, our calendar is starting to get more interesting and more robust over the coming weeks and months.”
Gokul Mani, Managing Director, Head of CEEMEA ECM at JP Morgan uses the term the ‘Great Bifurcation’ to refer to the period when the MENA IPO markets were producing issuance and returns while global IPOs were challenged. Now, the Western markets have begun their recovery. Globally, $381 billion of follow-on equity proceeds were raised in 2023, above the $338 billion raised in 2022, but below the $588 billion average reached between 2019 and 2022, PwC data showed. However, this does not signify their MENA counterparts will see their activity decrease.
“We saw the return of US IPOs and the return of the European IPO space,” Mani continued. “It’s a fight for attention but it’s a fair fight. The IPO momentum is here to stay.”
“It’s a fight for attention but it’s a fair fight. The IPO momentum is here to stay.”
Gokul Mani
The availability of capital, the readiness and diversity of investors and the number of startups and private companies recording record growth will all continue to make GCC exchanges attractive to investors. In DFM alone, 65% of the activity comes from institutional investors, according to its CEO, Hamed Ali. The remaining 35% is activity originating from retail investors, showcasing the strength of the market, which is not set to change anytime soon.
“If you relate the amount of wealth relative to the opportunities we have, we still don’t have enough opportunities,” Ali added. “We don’t have enough ideas, we don’t have enough transactions for investors to invest in, and that gives issuers an opportunity.”
The privatisation push
The story of the GCC IPOs began with government initiatives and has now outgrown them. In Saudi Arabia, boosting IPO activity was ranked as the most relevant theme to achieving Vision 2030 by stakeholders in the region, according to research by PwC. According to Saudi Arabia’s Securities Depository Center (Edaa), the Kingdom has fully achieved its 2021 and 2022 listing targets, and it is expected to exceed its 2030 growth target.
“Developing the stock market is one of the pillars of a vision of a country,” said Prasad Chari, Managing Director of ECM at ENBD Capital. He highlighted the carefully-planned journey that has led to the regional IPO boom. “This has not happened overnight,” Chari explained. “What we see today is the result of many years of work by regulators, by the government. “It’s like a perfect storm; it’s been a long time coming. It’s not accidental—it’s an intentional long-term plan that is now coming to fruition.”
“It’s not accidental—it’s an intentional long-term plan that is now coming to fruition.”
Prasad Chari
]In the UAE, the Dubai government pledged in 2021 to take 10 governmental entities public as part of a plan to boost the DFM trading volumes to $817 billion. The Parkin IPO was the sixth out of the ten IPOs announced, with the remaining four still unknown.
“The way we see it is that an index should be a reflection of an economy,” said Samer Deghaili, Co-Head of Investment Banking MENAT at HSBC. “These opportunities are high growth opportunities, reflecting pretty much the strength of the economy of Dubai. The government clearly has been and is willing to share the ownership of prized assets with the public. We see a promising pipeline of opportunities coming down the road.”
Going forward, analysts see an evolution of the market, as the trend of public sector privatisations gives way to a wave of more, smaller IPOs from private sector firms seeking capital. “Dubai’s endgame was very simple: We are setting up a market that will serve the private sector,” DFM’s Ali noted. “We have shown through the IPOs that we have done, that we have access to capital.”
If the past was government entities and the present is private companies. The future of the Middle East IPO landscape is family-owned businesses which might seek to gain the exposure and capital public listings can provide. Through these offerings, GCC nations are boosting their market’s capitalisation, liquidity and activity. But an IPO is not the end of the journey. For companies and countries, these listings are just the start of an exciting path transforming emerging economies into global financial centres.