Here’s why the GCC IPO bonanza is here to stay

GCC equity capital markets enjoyed a strong finish to 2023 and the region’s strong showing stands in sharp contrast to many other major initial public offering (IPO) markets, from the US to Europe and China.

The region remains one of the few bright spots in global IPO markets. This trend is expected to continue with as many as 29 companies across various sectors considering listing in 2024, with Saudi Arabia and the UAE leading the way in terms of expected volumes.

“One of the overarching investment themes in the GCC is that governments want to attract international and regional capital into their countries,” says Ali Anwar, managing director, and Middle East Practice Leader with Alvarez & Marsal.

“To achieve this strategic objective, GCC countries are offering opportunities for international and regional investors access to liquid and tightly regulated stock exchanges,” Anwar explains, adding that the region’s IPO pipeline remains strong in 2024.

Among companies planning listings are Saudi budget carrier Flynas, grocery chains Spinneys Dubai and Lulu Group International in the UAE and Oman state energy firm OQ, which plans to list its exploration and production business, as well as its methanol and liquefied petroleum gas unit, according to Bloomberg.

Globally, 2023 was the worst year for first-time share sales since 2009, with many marquee listings having mediocre trading debuts, such as German premium footwear maker Birkenstock Holding.

However, it was a completely different story in the Gulf region where investor confidence continued, with 11 out of the 19 listings in the last quarter of the year recording a first-day gain in share price.

EY said 26 out of the 48 IPOs in the GCC region showed a positive return compared to their listing price at the end of 2023. “GCC countries have also made significant progress in creating liquidity and investor interest in local markets through listing significant state-owned companies. This is an important step to encourage foreign investments into the local capital markets,” says Muhammad Hassan, Capital Markets Leader at PwC Middle East.

Hassan notes that the number of Saudi-qualified foreign investors, international investors that have direct and consistent access to the kingdom’s capital markets, rose from 50 in 2017 to 3,700 in 2023.

Last year, the IPO haul in the GCC stood at $10.7bn from 48 listings, a 6 per cent decrease in volume and a 51 per cent plunge in proceeds compared to 2022. Five listings, mainly in the energy and logistics sectors, contributed 58 per cent towards the total IPO proceeds raised in the region.

A global IPO bright spot

The GCC is set to see more equity capital markets activity in 2024 as more companies seek public listings, having been a bright spot amid a slowdown elsewhere last year. The region is bucking a global slump in stock market listings and geopolitical tensions, with two listings already on the Saudi Exchange (Tadawul) – Avalon Pharma and Modern Mills.

“Whilst the door to certain global IPO markets was generally closed in 2023, the door is expected to remain wide open for companies pursuing a listing in the GCC in 2024 supported by strong macroeconomic fundamentals,” explains Hassan.

Kuwait asset management firm Kamco Invest said Saudi Arabia continued its dominance for issuances in 2023, as 35 out of the 46 listings in the region debuted on Tadawul with the exchange’s main market attracting eight deals while the UAE continued its domination in terms of proceeds, racking in around $6.07bn from eight listings – almost 56.3 per cent of the GCC region’s total IPO proceeds.

The bumper deal from the region in 2023 was the $2.5bn IPO of ADNOC Group gas business, ADNOC Gas, a deal that was covered more than 50 times and constituted 25 per cent of total GCC IPO proceeds.

Saudi oil and gas driller ADES Holding Company raised $1.2bn from its IPO on Tadawul last September. The offering, which drew $76.5bn (SAR286.9bn) in orders and was covered 9.8 times, constituted 12 per cent of total GCC IPO proceeds in 2023.

“With a continuing momentum on IPOs and a strong economic outlook, MENA equity markets remain robust and investor confidence has been demonstrated through the oversubscription of the large attractive IPOs such as ADNOC Logistics and Services, OQ Gas Networks, Dubai Taxi Company and Abraj Energy,” says Gregory Hughes, EY MENA IPO and Transaction Diligence Leader.

PureHealth Holding raised $985m from its IPO on the Abu Dhabi Securities Exchange (ADX), the third largest public offering in the region. The Abu Dhabi-based healthcare firm offered 1.11 billion shares and proceeds from its listing constituted 9.7 per cent of total proceeds in the region.

Furthermore, ADNOC Group’s logistics unit, ADNOC L&S, sold 1.41 billion shares in its IPO on the ADX, equivalent to 19 per cent of the company’s paid-up capital, to raise $771m. ADNOC L&S IPO proceeds constituted 7.6 per cent of the total haul in 2023.

OQ Gas Networks’ listing on the Muscat Stock Exchange raised $728m. The listing, which is Oman’s biggest offering in almost two decades, constituted 7.2 per cent of the total GCC IPO proceeds of 2023.

A fertile environment

The slew of issuances in the GCC comes on the back of a raft of measures that are being implemented by stock markets in the region, taking advantage of the international attention amid a dearth of IPOs elsewhere.

“Shareholders of companies in the GCC region are increasingly seeing IPOs as a favoured route to raise capital or achieve an exit at attractive valuations encouraged by the rise in international and regional investors allocating more capital for investment in GCC stock markets,” adds Anwar.

Tadawul Group, the ADX and the Dubai Financial Market have made comprehensive regulatory changes to bring their markets in line with international standards, such as loosening foreign-ownership requirements.

Abu Dhabi launched a $1.4bn IPO fund in October 2021 to incentivise private companies to list on the ADX. The IPO fund will be reportedly overseen by the Supreme Council for Financial and Economic Affairs, managed by the Abu Dhabi Department of Economic Development and it will invest in five to ten private companies per year.

The changes have resulted in a flurry of IPOs, and the increase in investor attention is such that new asset managers have been heading to the Arabian Gulf region in search of deals.

Major GCC stock exchanges remained active with listing momentum in 2023, but the number of IPOs in the region declined marginally to 46 issuances in 2023 from 48 issuances in 2022. Going forward, industry experts say IPOs will need lower interest rates to substantially increase the number of deals.

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