IPO volatility persists in GCC and activity low: PwC

(MENAFN- The Peninsula)

DOHA: The IPO performance in the Gulf Cooperation Council (GCC) in the first quarter (Q1) of 2016 remained relatively sluggish in terms of the number of IPOs as volatility in oil prices and the slowdown in the global economic environment impacted capital markets activity.

However the value of the only offering in the quarter improved significantly proving investor appetite exists for companies that have the right equity and growth story and operate in defensive sectors such as healthcare and education PwC’s latest report said.

Saudi Arabia was the only active IPO market in Q1 2016 with one offering in March. Middle East Healthcare Company (MEAHCO) that owns and operates the Saudi German hospitals offered 27.61 million shares to the public (amounting to 30 percent of the company’s share capital) and raised proceeds of $471m. The company listed on the Saudi Stock Exchange Tadawul.

Looking at IPO performance in Q1 2016 compared to the same period in the prior year although there was just one IPO the total value raised in Q1 2016 was 2.5 times higher than compared to the same period in the prior year. Looking at performance in the previous quarter the one IPO in Q4 2015 also listing on Tadawul raised $101m representing 21 percent of the amount raised in Q1 2016.

Tadawul has been the most active market during the past 5 quarters if not the only one and is expected to remain the market with the highest activity in the GCC taking into account the forthcoming IPOs currently in the pipeline.

Steve Drake Head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East said: “The key elements characterising the 2015 capital markets performance related to uncertainty over oil prices and the geo-political developments in the GCC region which continued during the first part of 2016. However the GCC pipeline for the remainder 2016 looks promising. IPOs put on hold in 2015 due to regional instability are expected to come back in 2016 as lower oil prices become the norm and are factored into the marke”.

The GCC bond and Sukuk markets have improved in Q1 2016 compared to Q4 2015 irrespective of overall activity remaining muted. The region saw some positive sentiment towards the end of the quarter however investors remain price sensitive and susceptible to challenging market conditions and therefore bond and Sukuk pricing was higher generating additional challenges when pricing and closing transactions. In fact several companies put on hold or delay their Sukuk/ bond raising aspirations for pricing reasons.

In sovereign issuances the Central Bank of Kuwait and the Central Bank of Bahrain were the most active players during this quarter. The Central Bank of Bahrain issued 10 treasury bills each worth $184m(BD 70m) with maturities of three months three treasury bills each worth $92m (BD 35m) with maturities of six months and one treasury bill worth USD526 million (BD200m) with a maturity of one year. The issuances with three month maturities from the Central Bank of Kuwait amounted to $2.6bn (KWD 775m) while issuances with six month maturities amounted to $1.4bn (KWD 425m).

Dubai Islamic Bank successfully issued $500m 5 year Sukuk attracting geographically diversified investors from Europe Asia and the Mena region. The offering was 2.4 times oversubscribed.

On the sovereign front the Central Bank of Bahrain was one of the most active players in the region issuing three Sukuk Al Salam each worth $113m (BD 43m) and three short term leasing type Sukuk each worth $68m (BD 26m).

Steve Drake Head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East region said:“Bond and Sukuk markets were relatively quiet in the first quarter of 2016; albeit activity improved compared to the last quarter of 2015 and is expected to pick up further in the next quarter. However uncertain market conditions for the remainder of 2016 continue to cause uncertainty within the investor community and the debt market in general.

The Peninsula