Stormy financial markets have derailed initial public offerings (IPOs), ending the momentum for new listings that was building just months ago, industry officials say. Analysts are observing a gloomy outlook for the IPO market in the short term, as the most popular IPO listings in the past two years have been in the financial services sector in the Gulf. Nine out of 12 IPOs issued this year and 17 last year were in the financial services sector, according to data from Zawya, and included Alinma Bank, the largest IPO on the Saudi's Tadawul exchange, and Ajman Bank on the Dubai Financial Market (DFM). The shares of financial companies have been particularly hard-hit as foreign investors have fled the GCC markets, sending them plummeting. Listing shares in the coming months would be "suicidal", said Karim el Solh, the chief executive of Gulf Capital. He said it could take another 18 months to two years for the IPO market to pick up again. "Why should people invest in IPOs when they can have the best picks of the stock market at bottom valuations?" The total value of IPOs in the GCC for the first nine months of this year was double that of those launched in the same period last year, according to data provided by the news and data provider Zawya. Up until the end of September, IPOs were worth US$11.67 billion (Dh42.86bn), whereas last year they totalled $5.9bn.
Saudi IPOs dominate the list, but fell this year to 13 from 20 last year. However, the listings were much bigger this year, nearly three times the value of those the previous year. But while the 2008 figures appear to be impressive, they cover an economic period during which the stock markets were high and property markets were booming. Now, with collapsing equities, pressure on local banks and a housing market that appears to have peaked, the IPO pipeline seems to have fizzled out. There were none in the GCC in the past month, with a mere four in the pipeline, according to Zawya.
The fall-off in listings has taken a toll on financial firms that take fees from organising and selling new share offerings. Shuaa Capital, a UAE-based financial services firm that ranked number two lead manager on IPO deals in the GCC last year, said that IPO delays contributed to the firm's losses posted in the earnings report this year, said Oliver Schutzmann, the firm's spokesperson. The firm registered a net loss of Dh371.1 million for the six months ending on Sept 30. "The delay of IPOs has affected Shuaa's investment banking business," said Mr Schutzmann.
The firm has seen several of the IPOs where it had mandates delayed, including Al Qudra Holdings in March and two more IPOs that were meant to be announced earlier this month, but which have been shelved for now. Shuaa's earnings report stated that the firm's results were primarily impacted by the global market downturn, which had specifically affected the principle investments business "where a number of major capital market transactions have been delayed due to the adverse market conditions".
Also included in the results are losses related to Dh78.6m worth of write-downs on structured products and fixed income securities that were exposed to Lehman Brothers. Yazan Abdeen, an equities portfolio manager at ING Investment Management, said the market needed to stabilise before investor interest in new offerings would return. The DFM had both its biggest one-day rise and its biggest one-day fall in the past two weeks. It has lost about 19 per cent in the past month, and 47 per cent this year. "The market is not in a position to absorb new listings now," Mr Abdeen said.
Mr Solh, however, is optimistic about finding opportunities for private equity in the dried-up IPO market. He believes that many Gulf companies are seeking private equity firms for growth capital at a time when public listings are not advisable and banks have become more strict with lending. "The companies are much more amenable to selling equity and they need to keep going even though banks aren't lending, so they come to us for growth capital - instead of borrowing, they increase their equity through us," he said.
"Before, the IPO market was a competitor to private equity; a lot of families in business said 'why do I need to go through a round of private equity, I'll bypass you and go straight to the public market'. Now, the IPO market is shot." shamdan@thenational.ae afoxwell@thenational.ae