Can GCC markets sustain the IPO momentum in 2024?

Strong returns after listings have made IPOs a favourite option for investors, analysts say

Saudi Arabia led the volume of listing in the GCC with 35 out of the 46 IPOs last year. Reuters

The GCC could be headed for another bumper year for initial public offerings in 2024, thanks to governments in the region pushing for privatisation, the growing appetite of private sector companies to raise capital and strong investor demand, according to companies and analysts.

Stellar post-listing performance of regional companies – returning an average of 40 per cent to investors – has increased the popularity of IPOs, leading to a rise in the pipeline for new public floats.

“Past trends of strong [investor] interest and post-listing market performance with a clear positioning of growth prospects, should encourage IPO candidates to enter the primary market with confidence,” said Thomas Mathew, vice president of investment strategy and research at investment strategy and research company Kamco.

Companies from the GCC region raised a total of $10.79 billion in IPOs last year, data showed.

Although the overall value of funds raised through primary public listings dropped by about 55 per cent annually, the number of IPOs in the GCC declined marginally to 46 issuances in 2023 from 48 issuances in 2022, according to data from Bloomberg and stock exchanges.

The volume of issuances across the GCC last year was driven by smaller ticket listings resulting in lower proceeds.

However, the positive performance of the majority of these stocks is expected to encourage more firms to list.

Dividend yields from recurring revenue-generating companies, mostly state-owned enterprises, were highly sought after, pushing demand for their share offerings.

Analysts say companies with IPO plans and the investment bankers they have hired will pitch the issuances to potential investors on price appreciation prospects.

A 5 to 6 per cent dividend yield, according to the trends of the past two years, will be another selling point.

UAE and Saudi Arabia lead the ranks

The UAE, the Arab world's second-largest economy, topped in terms of the funds raised last year in the GCC through IPOs. Issuers secured $6.07 billion from eight listings on UAE exchanges, accounting for about 56.3 per cent of total proceeds, according to data from Kamco.

The Abu Dhabi Securities Exchange was the top regional bourse with $4.9 billion, followed by the Dubai Financial Market with $500 million.

Companies raised $3.5 billion on the Saudi Exchange (Tadawul) with 35 offerings, recording the highest number of IPOs in the GCC during 2023 and 35 per cent of total proceeds.

The Muscat Securities Market listed two IPOs with total proceeds of $973 million, while one listing on the Qatar Exchange raised $193 million.

Despite a drop in both value and volume, the broader Middle East region along with China were the bright spots in the global IPO market, according to PwC’s Global IPO Watch 2023 and outlook for 2024 report.

China was the largest IPO market globally, with companies raising $45.3 billion in deals that included three of the world’s top 10 listings last year.

Equity market performance in 2023 remained strong in most markets. The MSCI World index climbed more than 22 per cent, supported by a 24 per cent rise in the S&P 500, a 4 per cent jump in the FTSE100 and a 12 per cent advance of Stoxx Europe 600.

PwC remains cautiously optimistic about the IPO momentum globally as the macroeconomic landscape stabilises this year.

“The renewed optimism is tempered by geopolitical uncertainties and with elections in 2024 for a significant proportion of the world's population, IPO windows will rapidly open and close,” said Stuart Newman, global IPO centre leader at PwC.

The Middle East and North Africa region also has a healthy pipeline of IPOs this year, according to EY.

“IPOs [in Mena] remain driven by the dominant economies of Saudi Arabia and the UAE, which are pursuing their strategic agenda of increasing capital market activity on the local exchanges and stepping up efforts to attract foreign investment,” said Brad Watson, EY Mena strategy and transactions leader.

Increasing visibility

Companies also view IPOs as an attractive option given the current interest rate environment, according to analysts.

Abu Dhabi-based blockchain and crypto solutions company Phoenix Group, which began trading on the Abu Dhabi Securities Exchange in December following a $370 million IPO, said fund-raising through a share sale is a viable option for companies looking to finance expansion.

The IPO deal of Phoenix, which offers services including cloud mining, data centre hosting and crypto trading, was 33 times oversubscribed.

“Phoenix group is in the next phase of growth and needed capital to fuel its expansion, hence the decision to go public and list on ADX,” said an official for the company.

“The benefits of going public are abundant, including increased capital, visibility, and the ability to attract top talent,” said Sam Barnett, chief executive of MBC Group.

“However, it also comes with the challenge of meeting regulatory requirements and managing public expectations, which we are prepared to navigate.”

In December, the MBC Group raised 831 million riyals ($221.6 million) through the sale of a 10 per cent stake in a public offering on the Tadawul.

“The IPO is our strategy to amplify our market position, broaden our audience reach and bolster investments in our flagship streaming platform, Shahid, as well as other promising entertainment verticals,” he said.

Pharmaceutical company Avalon Pharma, which plans to raise $131 million through an upcoming Tadawul listing, is selling 6 million shares or 30 per cent of its capital to investors.

The IPO is the “next step in the maturity of our company and something we have been considering for the past few years”, chief executive Mohamed Al Ghannam told The National.

“Through the listing of the shares, we increase visibility and … in the long term, we can access potential sources of funding if needed.”

Avalon Pharma, which produces and promotes consumer health, beauty brands and generic drugs, aims to launch new products and expand its regional footprint, he added.

“We have a clear growth strategy not only till 2027 … but until 2030 as well.”

The company, which recorded 338 million riyals in revenue last year, seeks to double that amount by 2027 and reach 1 billion riyals in revenue by 2030.

GCC companies will continue to list their shares in the coming months amid significant reforms on the back of “favourable market dynamics which provide the opportunity and the appetite for founders of these companies to list their business or their companies and sell the stake”, Mr Al Ghannam said.

While government initiatives such as the Saudi Vision 2030 and the privatisation of state-owned assets in the UAE led the initial phase of IPOs in the GCC, the next phase is being driven by family-owned businesses, according to PwC.

The significant premium at which most shares traded from their IPO prices last year will prove to be a momentum builder for companies and investment banks to push for more deals, analysts said.

Most GCC public floats recorded strong trading momentum post-listing, with Ades Holding and ADX-listed Pure Health both rising more than 70 per cent on debut, according to PwC.

While shares of Adnoc Logistics and Services surged 58 per cent on the listing, Dubai Taxi, Adnoc Gas and Phoenix rose 19 per cent and 18 per cent each.

Most of these shares continue to trade above their listing prices.

While Ades Holding closed at 19.22 Saudi riyals, about 42 per cent higher than its listing price on Monday, Pure Health shares were up 45.7 per cent from its listing price of Dh3.26. As Adnoc L&S closed 97 per cent above its IPO price, Dubai Taxi and Adnoc Gas closed 27 per cent 34 per cent higher, respectively, from their listing prices.

“The competitive position of IPOs as an investment option and dividend yield expectations will be key drivers”, in attracting new investors, Kamco’s Mr Mathew said.

While Saudi Arabia and the UAE are likely to keep the lead position for IPOs this year, Oman is expected to emerge as a significant player with the potential listing of many state-owned assets.

Oman’s sovereign wealth fund, the Oman Investment Authority, is set to launch about 30 IPOs, according to Thuraiya Al Balushi, the wealth fund’s manager for economic diversification.

“OIA aims to enhance private-sector participation to deepen the capital market, paving the way for an upgrade by MSCI from frontier to emerging-market status,” Ms Al Balushi told Bloomberg in December.

Oman's OQ Gas Network IPO was the fourth largest public float in the region last year, raising $771 million. Abraj Energy Services also raised $244.1 million through its listing.

“A repeat of 2023 is possible,” Mr Matthew said.

However, “we also believe that … [the market] will be dominated by a fewer number of larger issues,” which will grow the value of deals significantly, he added.

Despite strong investor demand, analysts do not see a repeat of the 2022 boom that was led by big-ticket IPOs such as the $6.1 billion issuance of Dubai Electricity and Water Authority or the $1.3 billion IPO of Saudi Aramco Base Oil Company Luberef.

Factors such as interest rates, geopolitics, stock market volatility and oil prices will continue to remain crucial in 2024 for the pipeline of 28 to 30 companies that have announced listing plans or are rumoured to seek a listing, according to Kamco.