MENA IPOs plunge in Q3; lower liquidity seen limiting pick-up

Source：By Santhosh V Perumal Business R Release Date：2013-10-23 250

Metalworking

The initial public offerings (IPOs) in Middle East and North Africa (Mena) fell 45.3% year-on-year in the third quarter (Q3) but is expected to pick up, although the key challenge is the relatively lower levels of liquidity in the exchanges, according to Ernst & Young (E&Y).

Through the maiden offers, Mena raised $138mn in Q3, which was 45.3% lower than that in year-ago period, E&Y said in a report.

The two IPOs were Oman's Sembcorp Salalah Power and Water Company in the power and utilities sector and Saudi Arabia's City Cement.

Highlighting that the Q3 is historically a slow period for IPOs, Phil Gandier, Mena head of transaction advisory services, E&Y, said this year, the summer months coincided with the holy month Ramadan, leading to a slower paced environment for raising money for IPOs.

"However, we have seen an increase in the number of companies in the region contemplating IPOs in the coming months so we expect activity to pick up," he said.

Expecting more companies to proceed along the IPO journey and regional and global investors to look towards the region for investment opportunities, he, however, said "going forward, the key challenge that the regional IPO market will face is the relatively lower levels of liquidity in the exchanges compared to international markets."

The choice of other exchanges and valuation differential may also present a challenge for regional bourses, although this will depend on the sector and 'go-to-market' credentials of individual companies, the report said, adding the increased number of announcements is an indication of the positive direction the IPO market is headed.

"There is an appetite to invest in profitable local companies that have scale and Pan-Arab operations. Within the Gulf, the Tadawul is expected to attract a large number of IPOs due to its high liquidity and the new facility of cross-listing for overseas companies," according to the report.

Additionally, the UAE has also been promoting inward investment and continues to play a key role in attracting investment to the region.

"The Gulf region as a whole has many of the investment qualities that companies look for such as solid fundamentals and strong demographic trends," Gandier said.

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