Appetite for IPOs looks healthier

Companies in the GCC consider going public thanks to rising valuations and new growth strategies.

After a sharp decline in activity linked to the global recession, there are signs of life in the Gulf’s IPO market.

More Gulf companies are considering going public as valuations improve and firms look to redraw their growth strategies after the global financial crisis.

The investment bank Rothschild is helping up to four firms in the GCC including companies in the UAE and Kuwait to launch initial public offerings (IPOs) from next year.

"Valuations are improving," said Paul Reynolds, the managing director and head of debt and equity advisory at Rothschild Middle East at an event about family business IPOs in Dubai yesterday. "More importantly people are back thinking about how to develop their businesses and how they scale them up and take advantage of the global trends."

Global institutional equity investors are looking at opportunities to invest in the region and are keen to talk to companies preparing to issue IPOs, he said.

After a sharp decline in activity linked to the global recession, signs of life are starting to emerge in the region's IPO market.

Steadily improving financial results are tempting companies to consider floating stakes in their business as valuations pick up. More generally, appetite for the region's debt has rebounded after several high-profile bond sales by sovereign and government-related firms in recent months.

Axiom Telecom, a mobile phone retailer based in Dubai, will help break a drought in the UAE IPO market.

The company said yesterday its shares would begin trading on NASDAQ Dubai on December 9.

Until now the 18 IPOs in the region this year had been dominated by Saudi Arabian issuers as liquidity in the Saudi market had been plentiful.

A relaxation of the amount of equity UAE companies had to sell, to 30 per cent, was one reason why companies may be willing to consider IPOs now, said Essa al Ghurair, the chairman of Al Ghurair Foods, a division of the diversified UAE family conglomerate Al Ghurair Investments.

Nonetheless, hurdles may remain in encouraging more family businesses to sell stakes in their business.

"Family companies are shy as you can make mistakes as a family business and nobody asks but when you go public everybody asks 'why did you do this, why did you do that'?," said Mr al Ghurair.

He said the firm was considering selling privately part of its business subsidiaries.

Improving levels of transparency and disclosure among private businesses are among the challenges facing family companies before they go public.

The focus on such issues has intensified after the problems surrounding corporate governance with NASDAQ Dubai-listed Damas.

"We've gone over and above, because of Damas," said Christopher Laing, the managing director and head of MENA for Deutsche Bank, which is the sole global co-ordinator and joint book-runner for the Axiom Telecom IPO.

Axiom Telecom has appointed independent directors and has put in strict rules, checks and balances before making operational decisions, he said.

"It is to protect Axiom Telecom shareholders. They have very strong independent directors, people that were unknown to the management team and the shareholders three months ago, certainly. People that are independent in every sense and established business figures in their own right."

Most stock exchanges would only list firms with fully audited accounts and financial statements dating back at least three years, said Lanae Holbrook, the senior vice president, general counsel and head of market regulation at NASDAQ Dubai.

"It's no longer the matriarch of the family to make business decisions as there needs to be a board of directors with independent members," she said.