(MENAFN Press) Initial Public Offering ("IPO") activity picked up in the Gulf Corporation Council ("GCC") in Q2 2012witnessing the strongest quarter-wise IPO performance in the last two years. New listings, although limited to only a few regional exchanges, have helped to soak up some of the excess liquidity in the region and attract investor appetite.
PwC's Capital Markets Watch GCC report found that a total of four IPOs raised USD 1,104 millionon the GCC stock exchanges during the quarter compared to threeIPOswhich raised USD340 million in Q2 2011, a 69% increase in value. Average IPO offering value rose to USD 276 million in the quarter compared to USD 39 million in Q1 2012 and USD 113 million in Q2 2011.
The debutants this quarter included Al Tayyar Travel Group, a family business in the travel and tourism sector and Saudi Airline Catering Company, the catering unit of Saudi Airlines, raising USD 365 million and approximately USD 354 million on the Saudi stock exchange, respectively. Despite the weak global equity market outlook and falling oil prices, the IPOs received an overwhelming response in the market signifying improving investor confidence.
Other notable issuances during the second quarter included a USD 227 million IPO by Najran Cement Company also on the Saudi stock exchange andthe Bank NizwaIPO, a newly established Islamic bank in Oman, raising USD 158 million and which may well pave the way for future IPOs of other start-up Islamic banks on the Muscat Securities Market.
The total value and number of IPOs in H12012 was higher by 70% and 33%, respectively, compared to the same period last year.
Tadawul, the Saudi stock market, continues to dominate the regional exchanges hosting five out of the six IPOs in the first half of 2012 and 87% of the total value raised. Activity on the UAE stock exchanges has been muted so far compared to last year which saw three IPOs at the end of H1 2011.
Trading activity on the GCC stock markets receded towards the end of H1 2012 driven by the downward movement in oil prices, worsening economic conditions in Europe as well as the news of slowing down of growth in China and other emerging markets.
Steven Drake, Head of PwC Capital Markets in the Middle East region said:
"Whilst IPO activity in Q2 2012 could be seen to be encouraging, it is still difficult to determine if we are seeing any real recovery. With what is happening in the Eurozone and the slowing of some of the high growth markets such as China and India, it is difficult to determine the impact this will have on our regional markets.
We continue to see a strong pipeline in Saudi Arabia and would expect some more companies come to market in Q3 and Q4 of 2012, as long as share prices remain stable. Our outlook for the rest of 2012 is for a continued IPO upward trend in the KSA market with perhaps limited to no activity on other regional markets."
In Europe, after some early encouraging signs in the first quarter, IPO activity slowed dramatically in Q2 2012 with approximately47 IPO's raising USD0.7 billion, a 65% decline in volume and a 96% decline in proceeds from Q2 2011 (134 IPOs raising USD18.4 billion).
The European markets remain negatively impacted by the Eurozone debt crisis, and uncertainty over global economic growth, especially in China.
With the traditional summer lull and Olympics in London fast approaching, European IPO activity is likely to remain subdued until the final quarter of the year.
The GCC debt marketremained strongduringH1 2012with conventional and Islamic issuances collectively performing better than in the same period last year.
The region's financing needs remain strong due to the heavy infrastructure development plans and refinancing needs to service existing debts.
According to recent estimates, the Saudi government plans to invest USD 500 billion on expansion and development programs and gas-rich Qatar will lay out USD 100 billion as it prepares to host the 2022 football World Cup.
In Q2 2012,one of the prominent conventional issuances included the USD 500 million corporatebondby Commercial Bank of Qatar which was listed on the London Stock Exchange. The largest corporate issuance of H1 2012 was Dolphin Energy's USD 1.3 billionissued in February this year.
On the sovereign front, the Central Bank of Kuwait issued treasury bills with a total value of USD 2.33 billion and bonds totalling USD 3.8 billion in Q2 2012.
Sukuk continued to outperform conventional bonds in the region this year with Saudi Arabia and UAE and being the most active.
Saudi-based Islamic Development Bank and JAFZ sukukfrom the UAE were the most notable in the quarter raising USD 800 million and USD 650 million, respectively.During the same period, the Government of Dubai issued two sukuk on the Dubai Financial Market totalling USD 1.25 billion.
The Saudi Arabian General Aviation Company issued the largest sukuk during the year which raised USD 4 billion.
Steven Drake added:
"The debt markets in the GCC seem to have remained largely impervious to global economic instabilitydue tocontinued government support of these issuances.
Despite fluctuating oil prices and turmoil in other markets, the GCC continues to remain of interest to both regional and international investors looking for exposure to regional fixed instrument securities."