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(MENAFN - Arab News) JEDDAH, 28 September 2007 — The use of rights issues in the Gulf Cooperation Council (GCC) is beginning to recover after the correction of the region's stock markets last year, the international law firm Trowers & Hamlins said yesterday.
The amount raised by rights issues on equity markets in the Gulf Cooperation Council (GCC) region between July 2006 and June 2007 fell 69 percent to $4.6 billion from $14.7 billion in the same period the previous year, the law firm said in its research. Trowers & Hamlins' research also showed that the financial services sector accounted for the largest proportion of rights issues in the Gulf region by value, at 70 percent, followed by transport and real estate, at 11 percent each.
The region's GulfBase GCC stock market index peaked at just under 9,600 points at the end of February 2006, falling to around 4,650 by the end of January 2007. However, the 2006/7 figure is still more than was raised in 2004/5, when it was $4.36 billion, and far more than in 2003/4 when it was just $147 million.
The research pointed out that the two biggest rights issues of 2007 so far have been announced recently.
In May, Saudi Basic Industries Corporation (SABIC) announced the acquisition of GE Plastics, the global plastics division of General Electric, for $11.6 billion. National Bank of Kuwait (NBK) announced in July it was taking a 40 percent stake in Turkish Bank for $160 million. At the end of August, NBK, which made a rights issue in October last year, announced that it intends to use a further rights issue to increase its capital by 20 percent by the end of this year, raising $1.45 billion.
Abu Dhabi National Energy (Taqa) is currently bidding $4.9billion for PrimeWest Energy Trust of Canada which will be its third Canadian acquisition in a year.
This month Saudi Arabia's Riyad Bank announced plans to raise $3.5 billion through a rights issue, the report said. "Last year's correction in the Gulf stock markets really knocked the wind out of rights issues. As the stock markets fell investors just weren't willing to pick up extra shares at what they saw as inflated prices," Rupert Copeman-Hill, partner of Trowers & Hamlins, said.
"Companies also weren't willing to issue shares at the kind of deep discounts that would have been needed to attract investor interest. So we did get a bit of a Mexican standsoff and issuance began to dry up," he further said. "For many ambitious corporates, it was just easier to turn to the debt and sukuk markets for extra funds. Now that stability has returned to the region's stock markets, investors are happier to add to their holdings through rights issues, and corporates are more comfortable with the valuations at which they can now issue new shares," Copeman-Hill said.
"If the region's markets continue to perform well, it seems certain that we are going to see more companies dusting down their plans to tap the stock market. From being widely overlooked just a few years ago, rights issues look set to remain a viable alternative to debt issuance, as more companies seek to take advantage of their strong valuations rather than add debt to their balance sheets," he said.
He added that "demand from investors for shares in Middle Eastern businesses should also remain strong, particularly since oil prices remain at record highs."
He pointed out that a large part of the funds raised through rights and bond issues in the last few years has been used to fund M&A activity both at home and in the wider Middle East region. Now companies are starting to look further afield for acquisition opportunities — to Asia, Europe and North America. "We expect to see this trend continue," he said.
Trowers & Hamlins has been named Law Firm of the Year at The Lawyer Awards 2007.
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