Regional IPOs raise $881.5m in second quarter, says EY

Initial public offerings in the Middle East and North Africa raised $881.5 million (Dh3.23 billion) in the second quarter of the year, led by listings in Saudi Arabia and Oman, according to Ernst & Young.

The value and volumes of listings increased 42.8 per cent and 12.5 per cent year-on-year respectively during the second quarter, compared with the same period last year, the consultancy said in a report on Tuesday.

Of the nine listings, four were from Saudi Arabia, where a number of real estate investment trusts have been listed on its exchange.

“The future inclusion of Saudi Arabia in the MSCI emerging markets index has drawn positive attention to the country, attracting investors from across the world,” said Phil Gandier, Mena transactions leader at EY.

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Saudi Arabia's favourable transaction environment was mainly due to the capital market authority's mandatory corporate governance code, relaxed rules for foreign investors as well as new settlement rules on the Tadawul stock exchange, he said.

As the region's biggest economy, the kingdom was upgraded to MSCI's emerging market status in June, a decision that is widely expected to improve liquidity in the world's top oil-exporting nation.

The highest value for an IPO in Saudi Arabia during the quarter was the listing of Mefic Reit Fund, which raised $237.5m. Real estate investment trusts are listed funds that own income-producing commercial real estate and distribute 80 to 90 per cent of their income as dividends to shareholders.

Oman was the only other Arabian Gulf state that had any IPO activity in the second quarter. The Muscat Securities Market has a pipeline of about 10 companies planning to list over the next two to three years.

The real estate sector accounted for the most number of transactions in Mena, raising $553m from four Reits, EY said. The oil and gas and financial sector raised $225m and $57.2m, respectively.

Elsewhere in the region, Egypt and Morocco completed one deal each, with the former in particular registering increased activity from state-owned and private entities looking to tap into the capital markets. The Egyptian government plans to list 23 public sector companies on the stock market, in line with its budgetary requirements.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Tue Sep 4 - Malaysia v Singapore, UAE v Oman, Nepal v Hong Kong
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Regional IPOs raise $881.5m in second quarter, says EY

Saudi Arabia leads regional growth, accounting for four out of nine listings

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