In the first quarter of 2018, six deals, raised US$ 629.6m, a 57.1% increase in value when compared to Q1 2017. Of the six deals, five were Real Estate Investment Trusts (REIT) in KSA, while Egypt recorded one IPO deal in the financial services sector. In terms of activity, it was a slow start to the year, with a 45.5% decrease in the number of deals when compared to the same quarter last year.
Mayur Pau, MENA Financial Services IPO Leader, EY, says: “IPO activity was relatively slow in the first quarter, though it is expected to pick up during the last two quarters of this year. The increase in deal value year-on-year indicates that the IPO market performance is strong. The most important impetus for the regional IPO market will likely be from the privatization drive across the region leading to the listing of government or quasi-government enterprises.”
Improved investor sentiment in Saudi Arabia
Saudi Arabia led the MENA IPO activity in Q1 2018 with five deals, raising US$ 603.2m in capital. The top three IPOs by value were listed on Tadawul: SEDCO Capital REIT, Jadwa REIT Saudi, and Al Rajhi REIT. The biggest MENA IPO of the quarter was the listing by SEDCO Capital, valued at US$ 173.3m.
The increasing trend of REITs being listed on the exchange is indicative of the growing investor interest in the Kingdom’s real estate assets. The Saudi stock market index also gained more than 9% in the first quarter, outpacing many other emerging market indices. The recent upgrade of Saudi Arabia to emerging market (EM) status by FTSE is expected to pump billions of dollars of foreign investment into the MENA region’s biggest stock exchange. A similar move from MSCI is expected in June 2018, making way for Saudi Arabia to gain another possible EM status upgrade in 2019.
Furthermore, the Saudi Capital Market Authority (CMA) has allowed direct investments by non-resident foreign investors on Saudi’s parallel market NOMU, effective from 1 January 2018.
Gregory Hughes, MENA IPO Leader, EY says: “The developments in Saudi Arabia underline that investor sentiment has been on a rebound, especially with the spike in oil prices and the Kingdom’s diversification plan starting to take effect. Looking at the other GCC exchanges, though they saw no listings during Q1 2018, the pipeline looks robust with a large number of companies already gearing up to go public in the next two years.”
More listings on the horizon with new market developments in Egypt and Kuwait
Egypt saw a successful issuance for BPE Holding for Financial Investments, which raised US$ 26.4m. IPO activity is expected to further increase in 2018 with Egypt having selected 23 companies for the first phase of its state IPO program, an initiative that aims to increase funding to Egyptian companies and maximizing benefit from state assets. These measures are expected to drive the highest market activity in Egypt since the plummet in 2011.
The Kuwait Stock Exchange is expected to enter the FTSE Russell’s Emerging Market Index in two equal stages during September and December of 2018. The exchange is also introducing the second phase of its market development, which includes a three-tiered segmented market, the introduction of new market-capitalized indices, as well as new listing requirements. The Kuwait Stock Exchange is also known to be getting ready to float in 2019 following the government’s recent efforts to privatize some of its state-controlled assets.
In the UAE, the IPO pipeline looks promising with Emirates Global Aluminum, Abu Dhabi Ports Company and Etihad REIT planning to go public in 2018.
“The economic reforms, market development initiatives and privatization drive in Saudi Arabia, the UAE, Egypt, and Kuwait will prepare the way for a buoyant MENA IPO market in the forthcoming quarters. The upcoming months are projected to show an improvement in volume, particularly with a strong pipeline of announced and rumored IPOs,” adds Mayur.
Global IPO activity trends on a similar pattern as the MENA region
Despite market volatility, global IPO activity in the first three months of 2018 posted strong results to start the year. Global IPO markets raised capital of US$42.8b in Q1 2018, a 28% year-on-year (YOY) increase on Q1 2017. However, with 287 listings in Q1 2018, deal activity was down 27% compared to the same period last year.
