The amount of money raised by initial public offerings in the region plummeted almost 70 per cent last year.
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Capital markets across the Middle East and North Africa (Mena) raised US$843.9 million in the first sale of stock to the public last year, compared with $2.8 billion in 2010.
And in the fourth quarter, there was an even more dramatic drop, of 83.5 per cent, from $1.4bn in 2010 to just $226.1m last year, according to Ernst & Young's year-end Mena IPO update.
The decline was due in part to companies seeking alternative sources of funding.
"Low investor interest continued in the Mena region as companies chose Islamic funding such as sukuk, which saw a record year, as the preferred route for fund-raising," said Phil Gandier, the regional head of transaction advisory services at Ernst & Young.
Volatility in capital markets is expected to continue in the next quarter, he said.
"The number of announced IPOs continues to grow across the region," Mr Gandier said. "The moment economic conditions and investor sentiment improves, we could see a flood of IPOs in the regional bourses."
Yet 2012 may not be the year for it, because the global environment remains poor and there is a lot of new leveraging of banks.
"That's all going to have an effect on the IPO market, so I am not looking for a huge improvement," said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi.
Liquidity and low valuations are the biggest problems facing the IPO market today.
Markets in the Emirates would benefit from more diversity as they are currently dominated by banks and property businesses.
However, a company such as Emirates Airline would ignite a lot of interest, Mr Khokhar said.
"Other industries could potentially do very well. I think something related to oil and gas industry would be great. It's natural for us as a region.
"And to diversify further, something in the aluminium space and metals would also be good."
Saudi Arabia raised the most in the region through IPOs last year at $460.5m, followed by the UAE with $271.3m and Oman with $63.9m. Morocco, Tunisia, Jordan and Syria were the only other Mena countries with IPO activity.
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