IPO activity in Q3 2014 was limited to three IPOs. Emaar Malls Group (EMG) listed on the Dubai Financial Market (DFM) in the UAE. The two IPOs of Zain Bahrain (Bahrain) and Délice Holding (Tunisia) closed in Q3 2014 and are expected to list in the beginning of Q4 2014.
Phil Gandier, MENA Head of Transaction Advisory Services, EY says: “The third quarter witnessed the largest IPO of 2014 to date; Emaar Malls Group raised US$1.6b, potentially signaling a shift in theregional business perception of local markets. The IPO, which closed in September this year, was heavily oversubscribed (over 30 times), indicatinggrowing investor confidence and appetite to deploy capital whichhas been waiting on the side-lines.”
EMG was one of the first companies to capitalize on planned regulatory reforms in the UAE by being exempted from having to float 55% of existing shares, ahead of the new regulations being implemented. The group floated close to 15% of its shares on the Dubai Financial Market to raise US$1.6 billion.
Mayur Pau, MENA IPO Leader, EY, says:“The third quarter historically has the lowest activity of the year and this trend has continued in 2014. Q3 2014 has been relatively slow in terms of IPO volume comparedwith other quarters due to the quiet summer period.However, the strongfundamentals of the MENA region and improved valuations arelikely to drive IPO volume, with a significant backlog expected to come to market over the next quarters as companies wait to go public at the right time.”
The MENA capital markets have been introducing new reforms and relaxing their rules in an attempt to encourage local companies to consider domestic IPOs. The Saudi Tadawul’s recent announcement to open its stock market to direct investment by foreign financial institutions is likely to raise its profile on the international scene. Given the forthcoming changes in UAE regulations, a further potential boost for the UAE stock market is the proposed listing of DAMAC, the luxury property developer, on the DFM. DAMAC has global depository receipts currently listed on the London Stock Exchange.
“The more relaxed regulations are increasing the attractiveness of local markets. Regional regulators are continuing to focus more on measures to increase IPOs, thus leading to a much-needed deepening of the equity market in the region and improved sentiment from global investors. MENA regional authorities have also been streamlining IPO rules to encourage some of the region’s family business to list as a way of making business more transparent,” comments Mayur.
A number of funds based in MENA that specialize in IPOs have made impressive returns in recent times. Since valuationsare back to an attractive exit level, most of the investments aregradually being restructured and the pressure for monetizing them is growing which has led to a healthy IPO pipeline. IPOfunds represent the most efficient option for institutional investorsthat would not have a significant allocation to a public offering due to either high demand or foreign ownership limits.
“MENA IPO activity is expected to surge in 2015, particularly in the GCC countries, withmarket valuations returning to somewhere near pre-financial crisis levels.Companies in the financial services and real estate sectors continue to dominate the pipeline. With a growing regional economy and regulatory initiativesbeing implemented, investor confidence is expected to rise and bring liquidity to the market.Government spending on infrastructure and diversification ofoil-based economies have created more opportunities in theprivate sector. These continued developments are expected to encourage companies to raise capital from the market,” concludes Phil.