EFG-Hermes upbeat on regional listings, plans Saudi expansion

Egyptian investment bank also increasing exposure to frontier markets

EFG-Hermes is bullish on regional IPOs in the wake of higher oil prices. Reem Mohammed / The National

EFG-Hermes is upbeat about an increase in initial public offerings (IPOs) in the Mena region in the coming year, a senior executive said, with plans to increase its team in Saudi Arabia in response to an anticipated rise in listings within the kingdom,

“We have a very healthy IPO pipeline for 2018, if it all materializes it will be close to what we had last year,” said Mohammed Fahmi, the Dubai-based co-head of investment banking at the Egyptian investment bank.

“This year will be important and we are adding Saudi to the markets that we will be active in on the equity capital market side. It’s a very important market for us, it’s changing. They’ve shown very positive signs in terms of allowing foreign investors.”

EFG-Hermes currently has a brokerage operation in Saudi Arabia but is planning to boost the number of investment bankers it has in that country to between 5 to 7 bankers, though not necessarily by the end of this year, Mr Fahmi told reporters at a round table discussion at the bank’s Dubai office on Monday.

Saudi Arabia, which is in the midst of a massive transformation plan to diversify its economy, has been of particular interest to bankers, not least due to the upcoming IPO of around 5 per cent of Saudi Aramco, the world’s largest producer of oil. Analysts estimate the company’s worth at around $1.5 trillion, meaning such a listing could generate as much as $75 billion.

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Public offerings are making a comeback following a dry spell over the past couple of years when a slow-down in economic growth forced many companies to shelve plans for IPOs amid concerns of not getting proper valuations for their businesses.

The Mena region recorded five IPOs in the third quarter of 2017, up from a single listing in the same period in 2016 and more offerings are expected, thanks to the recovery in oil prices, consultancy EY said in a report released in December.

The value of IPOs in the third quarter rose 20 per cent to $236.7 million from the year-earlier period, led by three deals on the Saudi stock exchange, according to EY.

Mr Fahmi said the sale of stake in Aramco is likely to spur Saudi Arabia to open its stock market even more to foreign investors. Saudi Arabia’s Capital Market Authority last month further eased requirements for international investors looking to buy shares in publically traded companies, halving the minimum asset under management requirement for qualified foreign investors (QFI) to US$500m from $1bn.

EFG-Hermes was mandated on six initial public offerings across five different exchanges in 2017 compared to two in 2016, said Mr Fahmi.

The outlook for initial public offerings in the region is improving as the economic outlook improves and oil prices rebound. Improving valuations of publicly traded companies also makes selling shares in a public offering more attractive for companies looking to fund their growth, he said.

EFG-Hermes is also expanding its reach into frontier markets including Pakistan where it recently purchased a local brokerage and is eyeing others including Nigeria, Vietnam and Cambodia. Last year, the bank hired a frontier market team and opened an office in London.

The bank is working on a $150m to $200m IPO of a company that operates in Pakistan, Bangladesh and Sri Lanka on the London stock exchange, Mr. Fahmi said, declining to give further details.

“Frontier markets for us is a very big and very important change in our business,” he said. “The (Mena) region will continue to be our focus but frontier markets are becoming increasingly important for us.”