Low oil prices slow IPO activity in GCC- PwC

The ongoing oil price volatility has dampened appetite for initial public offerings (IPOs) in the Gulf, a new report by consultancy PwC showed.

The report said that oil is one of the key drivers of economic growth in the region and its bearish run has affected the IPO market.

During the first quarter of 2015, there was just one IPO in March by Orascom Constructions Limited on Nasdaq Dubai, which was a dual listing with the Egyptian Exchange (EGX). The company raised a total of $185 million from its listing, PwC said.

In comparison, there were two deals in the first quarter of 2014 that raised $953 million in total.

IPO activity in the first quarter of 2015 was also lower compared to the fourth quarter of 2014, both in terms of volume and value of offerings.

With a total of five IPOs in Q4 2014, the total amount raised was $7.3 billion, according to PwC.

The activity was mainly driven by Saudi lender National Commercial Bank’s IPO, which raised $6 billion, making it the largest IPO in the region during 2014 and the second largest in the world, after China-based Alibaba.

“The impact of lower oil prices was reflected in the subdued IPO performance in the region during the first quarter of 2015 with investors staying away from IPOs coupled with uncertainty around valuations, creating caution amongst issuers,” said Steve Drake, head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East region.

“The outlook for IPO activity for the remainder of the year is expected to improve with set IPOs and several announcements by issuers mainly on the Saudi and the UAE stock exchanges.”

In June this year, the Kingdom will open its bourse to foreign investment – a move that is expected to attract more funds to the regional market, analysts say.

But Drake cautioned that the Saudi market opening might not have a huge impact on IPOs and deal activity considering the ongoing economic climate.

“We should expect to continue to see caution in Saudi given uncertainty and depressed activity elsewhere in the region. The market that currently appears to be showing signs of strength is Egypt backed by government activity,” he said.

“Furthermore, UAE regulators have initiated significant developments recently, with Nasdaq Dubai’s collaboration agreement with EGX and the new UAE Commercial Companies Law which is expected to, amongst other benefits, reduce the minimum float requirements, support existing shareholders sell down and allow a book building approach which is expected to further encourage listings.”

IPO activity in the Gulf had started rising over the last two years as economic activity resurged.

Some of the most notable floatations last year were Emaar’s listing of its malls unit, the IPO of theme- park operator Dubai Parks and Resorts and the listing of retailer Marka.