GCC capital markets enjoy 'remarkable' end to 2019 with record-breaking Aramco IPO

Dubai has also established itself as a top global centre for sukuk listings, says PwC report

Aramco, which had earlier planned to spend $40bn for 2020, is revising its capital expenditure to between $25bn and $30bn this year. Reuters

Capital markets in the GCC attracted significant attention from global investors in the fourth quarter of 2019, as Saudi Aramco rolled out its record-breaking initial public offering and Dubai became one of the largest global centres for sukuk listings by value.

In contrast to the subdued IPO markets in the first three quarters of the year, the six-member economic bloc saw a rise in IPO activity in the last three months of 2019. Deals in the fourth quarter accounted for 96 per cent of the annual regional IPO proceeds, driven by the $25.6 billion (Dh94,04) Aramco deal, global consultancy PwC said in a report released on Tuesday.

While there were massive IPO proceeds in 2019, skewed by the mega Aramco transaction, the number of listings significantly reduced to only eight deals during the year, down from 17 recorded in 2018, PwC said. Saudi Arabia’s Tadawul, the biggest Arab bourse by market capitalisation, led the region both in terms of the number of deals and funds raised, the report said.

Tadawul’s inclusion in the FTSE Russell Emerging Markets Index and MSCI Emerging Market index also garnered attention from international investors.

“Q4 was a remarkable quarter in terms of equity capital markets. It was also an eventful year in the GCC debt market with Dubai becoming one of the largest global centres for sukuk listings by value,” said Mohamed El Borno, a partner and head of assurance at PwC Middle East.

“While we do expect macroeconomic and geopolitical uncertainties to continue … companies that are well prepared and have solid investments will continue to benefit from the region’s debt and equity capital markets.”

The GCC, which is home to about one-third of the world's proven oil reserves, also saw high value sovereign sukuk and bonds issuances last year. Sovereigns and corporates from the region are increasingly looking to raise funds from the debt capital markets, taking advantage of the lower interest rates, the report said.

Sukuk listings in Dubai included a green sukuk worth €1bn (Dh3.98bn) issued on Nasdaq Dubai during the fourth quarter by Islamic Development Bank through its subsidiary, IDB Trust Services. This, and two other issuances of $1.5bn each in 2019, brought the total amount of sukuk listed by IDB Trust Services on Nasdaq Dubai to $13.65bn, via 11 issuances.

Industrial and Commercial Bank of China’s branch in the Dubai International Financial Centre issued two bonds of $500m each last October on Nasdaq Dubai. The move helped the bank secure the position of the largest overseas bond issuer listed on the exchange by value, with total listed bonds valued at $4.56bn, PwC said.

Elsewhere in the region, Saudi Arabia offered $3.67bn of sukuk on Tadawul during the fourth quarter of 2019, although $2.49bn of this had been raised earlier in the year through the Ministry of Finance's ongoing programme. Oman also issued a $520m and a $260m sukuk and a $520m conventional bond in 2019.

Globally, equity capital markets remained subdued, weighed down by geopolitical and economic uncertainty. Investors were also concerned with pricing, which was evident in the listings of technology companies Uber, Lyft and Pinterest in the US. The high-profile collapse of the WeWork IPO was another example of this trend, the report said.

However, The last three months of 2019 fared better than the same period a year earlier in terms of both proceeds and the volume of IPOs. Globally, companies raised $71bn in total from 338 IPO deals in the fourth quarter of 2019, compared to 303 IPOs with proceeds of $57.6n a year earlier.

The Americas continued to lead the equity market during the year, accounting for 37 per cent ($74.1bn) of proceeds and 24 per cent (251) of the number of IPOs. Asia-Pacific came second, contributing 36 per cent ($71.7bn) of  global proceeds and 63 per cent (660) of total deals. Coming in third was Europe, the Middle East and Africa, which accounted for 27 per cent ($53.3bn) of IPO proceeds and 12 per cent of transactions.