BNN Bloomberg - Mideast Bucks IPO Slump as Investors Flock to Saudi, UAE Deals

Vijay Valecha, Special to BNN Bloomberg November 11, 2022

Almost half of the listing proceeds in Europe, the Middle East and Africa this year come from the Persian Gulf, as the region bucks a global downturn in initial public offering activity on the back of high crude prices and strong investor demand.

Middle Eastern IPOs have fetched $18 billion this year, representing 47% of the wider region’s $38.2 billion, data compiled by Bloomberg show. It’s the highest share for the Gulf on record after 2019, when Saudi oil giant Aramco went public in a $29 billion offering, the world’s largest.

While most major markets -- including Europe -- have seen IPOs slump sharply from last year’s record levels because of falling stocks and high inflation, it’s been a completely different story in the Middle East. A surge in oil prices through 2021 and the early months of this year, coupled with a rotation by investors into the region, have helped underpin listing activity. That had already started gaining steam in 2021 as governments sold stakes in companies to help fund a transition away from oil.

Stock markets in the Gulf have also held up a lot better than elsewhere, which has further boosted listing activity. Despite falling 16% from an April high, the MSCI GCC Countries Index is still up 2.5% this year, compared with an 11% drop in the STOXX Europe 600.

“GCC investors consider shares of well-known companies, especially from the public sector, as an excellent way to diversify their savings from real estate, hugely subject to swings in demand and supply, and bank deposits that yield low returns,” said Vijay Valecha, chief investment officer at Century Financial. “So in the near term, buoyancy in local markets is likely to be sustained.”

He said global underinvestment in energy would be an advantage for the Gulf, putting it in a “sweet spot” that is likely to benefit its financial markets.

Saudi oilfield-services firm Arabian Drilling Co. jumped 23% in its trading debut Monday after a $710 million IPO. The company attracted $43 billion in institutional investor orders, about 61 times the shares on offer. It’s not an exception. District cooling firm Empower drew $34 billion in bids for its $724 million IPO, which was doubled in size. Dubai private school operator Taaleem Holdings PJSC received more orders than the shares on offer within hours of the company opening its books on Thursday.

Six of the 10 biggest offerings in Europe, the Middle East and Africa have taken place in the Gulf in 2022. The region didn’t feature at all in the top 10 IPOs in EMEA this time last year, the data show. The pipeline for the rest of the year is full in the Middle East, with Taaleem, a Saudi cable firm and regional KFC restaurant operator Americana Restaurants, all lining up offerings in the next few weeks.

To be sure, the listings boom could slow down sharply if oil prices fall further on the back of a recession in the US and Europe, which many Wall Street executives now say is increasingly likely. In addition, the juicy dividend yields that Middle Eastern companies have been offering investors will have to go higher as interest rates go up, putting pressure on valuations.