|01-20-2015, 04:23 PM||#1|
MENA IPOs expected to slow down in 2015 after strong year
Initial public offering (IPO) activity in the MENA is expected to slow down in 2015 in the wake of the fall in oil prices, consultant firm Ernst & Young said on Monday.
“Although there is a healthy pipeline of IPOs for 2015, companies are adopting a “wait-and-see” approach until markets have settled,” Phil Gandier, EY’s Mena transaction advisory services leader, said in a statement. “The interest is still there, but companies are watching the markets closely, waiting for the right window of opportunity to float.”
As much as 27 IPOs were listed last year in the MENA region, raising $11.5 billion, the highest since 2008 and almost four times the $3 billion raised in 2013.
Emaar Properties, the largest listed developer in Dubai, is eyeing a listing for its hotel unit after the highly successful IPO of Emaar Malls Group, but it is still reluctant as it still awaits how the conditions of the market will pan out in 2015.
Another potential share sale is expected from Al Habtoor Group, a family-owned conglomerate that is aiming to raise up to $2.5 billion.
Equity markets in the Arab Gulf region have been agitated in the wake of oil’s 50% fall at the end of last year, as retail investors, who dominate the bigger share of trading in the region, fearing that lower oil income would slow the economies in the energy-exporting region and dampen government spending which would be reflected on the private sector.
“Market fundamentals still remain positive, however, and developments in regulatory reforms are still expected to drive IPO growth in Q1 2015, drawing new liquidity to the region. An increasing number of regional governments are looking to diversify their economies which will encourage companies in the non-oil sector to expand through the IPO route,” said Mr Gandier.
Companies still have the intention to go public, but are still waiting for the right time to float.
More Diversity Is Needed
Some of the planned IPOs are in industries that are under-represented in Gulf markets, such as travel and tourism and listings should find strong demand for business from those sectors.
Post the upgrades by index compiler MSCI and the S&P, foreign investors would be more tempted to enter the market if they see more choice in sectors and industries.
Foreign and international investors however were left worried after the oil rout about cuts in future spending on healthcare, education spending, infrastructure and tourism, which would impact the companies working in these industries in the short term.
Companies with plans to go public have been discouraged from entering the market after seeing the performance of companies who listed at the end of year. Dubai Parks and Resorts and Amanat Holdings listed late 2014 and are now both trading below their par price.
More listings in the region will boost regulation, liquidity and transparency, which will in turn attract more institutional regional investors and more foreign investors.
Although more liquidity brings more growth to the market as it will bring finer regulation and transparency, listing a lot of companies on markets could heighten the risks that come along with liquidity.
Investors and bankers are concerned that a large amount of investment into fresh equities has been made using borrowed or leveraged money, in addition to fears that some companies are listing without a proven track record.
Should those IPOs go wrong, it could derail markets’ promising revival.
Also, increased liquidity in markets could bring with it more volatility, as seen in the Dubai stock market, which has been gyrating with any small fluctuation in oil prices.
As said before, companies are willing to join the nascent recovery of markets, but are more willing to wait for the right window of opportunity to enter.
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