GCC IPO bonanza set to continue next year amid booming economies

Market fundamentals remain strong as the pipeline of deals grows with the UAE's push to bring more state-owned and private sector companies to the country's bourses, analysts say

Abu Dhabi's IPO fund is in talks with about 30 companies to list shares on the Abu Dhabi Securities Exchange. Photo: ADX

The initial public offering bonanza that bucked the global trend and allowed GCC companies to raise tens of billions of dollars by listing their shares will continue next year amid booming economies, analysts say.

Market fundamentals are strong and liquidity remains abundant, especially in the six-member economic bloc of GCC. The drive to bring the government sector entities to the market, primarily in the UAE, the Arab world’s second-largest economy, will further accelerate the IPO momentum going into the next year.

“The main drivers are the government bringing prized jewels to the exchange to increase the depth of the market, corporates taking advantage of liquidity in the system and good performance of the secondary market as compared to international peers,” Faisal Hasan, chief investment officer and head of asset management at Dubai-based Al Mal Capital, said.

“I think this trend is going to continue next year, as we currently see a strong pipeline of IPOs coming from UAE and Saudi Arabia.”

Unlike global markets that are largely short of liquidity amid subdued investor sentiment, soaring inflation and rising fears of recession on the back of interest rate increases, the Mena region has been buzzing with IPO activity this year with about $21 billion raised from offerings — the highest share after 2019 when Saudi Aramco went public in a $29 billion offering.

The regional IPO market has carried the momentum from last year, when several big-ticket share sales hit the market in the UAE and Saudi Arabia.

The pipeline developed last year has continued to mature this year as the number of new Mena-based companies listed on the region's bourses more than tripled.

The Mena IPO market, which saw nine companies raising $9 billion in proceeds from their share sales, continued its strong run in the third quarter, with seven IPOs raising approximately $1.5 billion in proceeds.

The surge of IPOs in the GCC, in particular, is attributable to multiple factors, including “solid economic fundamentals, market evaluation, compelling value proposition and change in perspective from international investors”, said Vijay Valecha, chief investment officer at Century Financial.

Global investors are also increasingly finding the region attractive after the Middle Eastern economies made a swift recovery from the Covid-driven slowdown, supported by higher oil prices.

"The region is now part of international indices like MSCI and FTSE and it is attracting both regional and foreign participation from active and passive funds," Mr Hasan said.

“They are looking at good equity growth, dividend plays and the IPOs are providing them with good investment avenues.”

Most GCC currencies are pegged to the dollar and that is also an advantage for the region and its stocks as other emerging market currencies have taken a hit, he added.

“We see capital increasingly being deployed to the GCC countries,” Mr Valecha said.

The drive of local companies to expand through IPO proceeds is met by an “equally keen international community, seeking growth and healthy underlying fundamentals”, he said.

Globally, there have been a total of 992 IPOs until the end of October this year, down 44 per cent from the same period in 2021, according to EY data.

Together, these companies raised $146 billion, a 57 per cent annual decrease as companies and investors continue to face mounting macroeconomic challenges, market uncertainty, increasing volatility and falling global equity prices, according to EY.

The UAE and Saudi Arabia were the most active IPO markets in the region this year both in terms of the value and the number of deals.

Dubai Water and Electricity Authority, the Dubai utility, raised $6 billion from its public offering, making it the biggest equity capital markets deal so far this year.

Dewa’s listing is part of Dubai’s plans to list 10 state-owned entities to increase the size of the emirate's bourse to Dh3 trillion, as well as set up a Dh2 billion market maker fund to encourage the listing of more private companies from sectors such as energy, logistics and retail.

Americana, the largest quick-service restaurant operator in the Mena region, is among the companies that floated shares this year. The company raised $1.8 billion from its IPO in November to dual list on Abu Dhabi and Saudi bourses.

Saudi Aramco Base Oil Company, better known as Luberef, is the latest Saudi company to pursue listing on Tadawul. It raised more than $1.32 billion from its IPO.

Bayanat, a geospatial data products and services provider owned by Abu Dhabi-based artificial intelligence and cloud computing company G42, raised more than Dh628.5 million from its ADX IPO.

In October, Abu Dhabi healthcare provider Burjeel Holdings listed its shares on the Abu Dhabi bourse after raising more than Dh1.1 billion from the sale of an 11 per cent stake.

Schools operator Taleem, Salik and Tecom, Abu Dhabi Ports Group and Borouge are among other listings this year.

The vibrant IPO activity in the UAE is a reflection of investors' desire to get exposure to the growing variety of economic sectors as markets continue to broaden and deepen with each new listing.

“The IPOs provide an opportunity to gain exposure to key sectors of the economy, including oil, petrochemicals or overall non-oil sector growth,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, said.

“The reform programme is also boosting confidence in the economic outlook. This is at a time where a number of other regions are facing structural and cyclical headwinds.”

The pipeline of listing deals heading into the next year remains strong.

Abu Dhabi, which launched a Dh5 billion IPO fund last year, has shortlisted six private sector companies to potentially receive investment and advisory services for listing their shares on the ADX.

It is also in discussion with 30 other companies to list on the capital’s stock market, Mohamed Al Shorafa, chairman of the Abu Dhabi Department of Economic Development, said last month.

There are several companies from outside the region that are also seeking the fund's support to list their shares on the ADX, Mr Al Shorafa told The National at the time.

In November, Abu Dhabi National Oil Company's board also gave approval to set up a new gas subsidiary and list its shares on the ADX next year. The new gas processing and marketing company, Adnoc Gas, will begin operations on January 1, according to Adnoc.

Supermarkets operator Lulu and Pure Health, a unit of Abu Dhabi-listed International Holding Company, have also announced plans for listings next year.

“Tadawul, the ADX and the DFM will dominate the GCC markets in terms of IPO activity next year,” Mr Valecha said. “We are likely to see multiple big-ticket IPOs.”