Initial public offerings in the Mena region may slow this year because of the oil price drop after last year posting the highest value since the 2008 financial crisis, the consultants EY said yesterday.
Companies in the Mena region raised US$11.5 billion through 27 IPOs last year, nearly four times the $3bn reached in 2013 and the highest since 2008, when $13.2bn was mopped up.
“Although there is a healthy pipeline of IPOs for 2015, companies are adopting a “wait-and-see” approach until markets have settled,” Phil Gandier, EY’s Mena transaction advisory services leader, said in a statement. “The interest is still there, but companies are watching the markets closely, waiting for the right window of opportunity to float.”
Emaar Properties, Dubai’s largest listed property developer, is eyeing the markets for a potential IPO for its hotel unit, but is waiting to see how market conditions will pan out this year. Emaar’s IPO of Emaar Malls Group last year raised Dh5.8bn.
Oil prices, which nearly halved last year, have roiled equity markets in the Arabian Gulf region as retail investors fret that lower oil revenue from the energy-exporting region would slow the economy and affect government spending and the trickle-down effect to the private sector.
“The decline in oil prices has left regional and international investors concerned about the curtailment of future government spending on infrastructure, education and health care,” said EY. “This would have an impact on companies operating in these sectors in the short run, and investors would be cautious to raise money through IPO in Q1 [first quarter] 2015.”
Several governments – including Oman’s, Saudi Arabia’s and Dubai’s – have announced budgets with increased expenditure despite the oil price slump as they opt to continue to spend on infrastructure, health care, education and other sectors to boost their economies and diversify income away from oil.
“Market fundamentals still remain positive, however, and developments in regulatory reforms are still expected to drive IPO growth in Q1 2015, drawing new liquidity to the region. An increasing number of regional governments are looking to diversify their economies which will encourage companies in the non-oil sector to expand through the IPO route,” said Mr Gandier.
Saudi Arabia and the UAE were the two most active IPO markets in the region last year.
dalsaadi@thenational.ae
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