Private Equity Chief Warns Against Overseas IPOs

GCC companies looking to raise growth capital should be wary of listing in foreign exchanges, according to a leading figure in the healthcare private equity industry.

The poor performance of local exchanges in recent years has seen several GCC companies opt to list in London, including UAE healthcare businesses NMC Healthcare and Al Noor Hospitals and most recently luxury real estate company Damac.

“With all the experience we have of listing companies outside of the country of their domicile, our general perception is it doesn’t work in the long run” Dr Helmut Schuehsler, chairman and CEO of TVM Capital MENA, told Gulf Business.

“It works in the short run very often because there is a certain hype, but if you look 10 to 20 years later it’s not worked and the reason is people buy domestic.”

Schuehsler, who has taken 40 companies public in his tenure, believes London listings have proven attractive for GCC companies due to the market’s stability.

“The attraction is liquidity and the attraction is markets that have long term buyers. The Middle East has proven to be a very emotion driven market, where people rush in the prices explode and then they come back out again,” he said.

He also sees the Arab community’s connection to London as being a key factor.

“This is something that will drive the success or failure of Arab or Gulf company IPOs in London, will the Arab community be able to maintain that strong interest in the UK and London and strong interaction with investors and institutions in the UK.”

“If that is maintained I believe we will see a lot more businesses from the Gulf list in London,” he added.

In response he sees GCC regulators changing their admission criteria to make local markets more attractive, including easing restrictions on the nationality of board members and shareholder structure.

“Al Noor and NMC should have gone public in Dubai, they shouldn’t have gone to London, but there are reasons why they didn’t do it. I think the local regulators should look at this and ask themselves the critical questions, is this really necessary and can we make it more attractive for local companies to list in local markets.”

The value of IPOs in MENA was down 45.3 per cent in Q3 2013 at $138 million, compared to $252.3 million in Q3 2012, according to Ernst & Young’s MENA Q3 IPO update. Although total capital raised for the first half of the year rose 52 per cent to $2.1 billion from the $1.4 billion raised in the first half of 2011.

E&Y forecasts that IPOs could be making a comeback next year off the back of improving capital market conditions, much of which will be concentrated in the UAE and Saudi.

Sameer, Al Ansari, chairman and CEO of consultant PE+ Advisors told Gulf Business he believed the IPOs in London over the last two years came as a result of poor performance in local markets, which were down up to 80 per cent at the start of the year with extremely low liquidity.

Now because of improving market performance, with Dubai the number one performing stock market globally, the former CEO of SHUAA Capital and founder of Dubai International Capital sees companies looking closer to home.

“For those reasons there was a window where issuers had to look outside the UAE, so London was a sensible choice, that window, I think, is beginning to shut.”

“Issuers will once again look at the local markets. In London NMC and Noor don’t mean much to most people, but in the UAE they’re the two biggest private healthcare providers, so they really should be on our market, and there would be a lot of interest if they were on our market.”

In the future he believes both may eventually look to have new listings in the UAE. “When they have enough confidence that the market is doing well and that there is enough liquidity institutional interest.”