Global investments head to the Middle East with public offerings

Saudi Aramco's IPO raised $26 billion (Photo by Adobe).

Ahmad Abdul- Rahman talks about the surge in IPOs in the Middle East and why this is happening.

The saturation of the European and American markets is pushing investors and funds towards a new area of economic activity.

With market fears that the global economy may enter a global financial crisis as a result of the collapse of the US banks and the problems that banks in Europe have, investors and funds are increasingly turning to the Middle East, according to a Financial Times report. The newspaper states that in 2008, when the Western economies were in crisis, the Middle East region was growing.

Since the USD26 billion initial public offering (IPO) of global energy giant Saudi Aramco in 2019, the market for IPO issues has boomed in the Middle East. According to data from the consulting firm EY, in 2022, the Middle East and North Africa region (MENA) witnessed 51 IPOs, the highest annual rate ever. The number of IPOS in 2022 increased by 179 per cent over 2021. Companies raised up to USD22 billion from IPOs during 2022.

Last year, VC fund managers invested USD19.8 billion in 191 IPO deals. The region was the only one in the world to witness an increase in fund investments in IPOs in 2022, according to the Global Private Capital Association.

Investment-friendly reforms

According to the association's data, the year 2022 recorded an unprecedented level of market capitalisation as a result of the significant increase in IPOs. Over the past five years, the market capitalisation in the region has increased by 475 per cent. There are now 269 companies listed on the stock exchanges and another 80 new companies are being prepared for offering, compared to 188 companies at the end of 2017.

The newspaper report states that the general climate in the Middle East encourages global investors to move from the sluggish European and American markets to a promising emerging market. Saudi Arabia, for example, is restructuring its economy to diversify away from dependence on oil. The UAE has strengthened the financial and commercial centre of Dubai and has increased the number of IPOs on the Abu Dhabi Stock Exchange. Qatar, which benefited from the success of organising the World Cup, is working to double its gas production.

All these factors tempt many investors and fund managers to turn to the Middle East in search of better opportunities away from the traditional western markets. The report also mentions how the IPO of the artificial intelligence (AI) company Presight on the Abu Dhabi Stock Exchange raised nearly half a billion dollars (US496 million). This came two weeks after ADNOC Gas launched an IP0, which provided it with USD2.5 billion in May 2023.

More corporate IPOs

Investors around the world expect the Middle East to continue listing companies on the stock exchange, as part of their privatisation programmes and diversification of the economies. With major market turmoil and uncertainty hanging over them and diminishing investment opportunities in the West, investors are moving to the region. The region is "on the radar" for global investors, says Miguel Azevedo, Citigroup's head of investment banking for the Middle East.

Azevedo adds: "Many [investors and fund managers] moved here after the Corona epidemic, and there were a large number of IPO deals. This forced the world to look to the region that aroused everyone's interest at a time when there is not much happening in the rest of the world." 

IPOs are not only limited to government companies or large companies. Private companies are also entering the race to take advantage of capital-raising opportunities from the stock exchange.

For example, the Americana Food Company (Americana), owned by the Saudi Investment Fund and Emirati businessman Mohammed Alabbar, floated its shares on the Riyadh and Abu Dhabi stock exchanges last December. Even family businesses, which account for up to 90 per cent of private companies in the Middle East, are starting to go public. An example of this is Al-Ansari Company, the largest foreign exchange company in the UAE. It raised USD210 million from its listing on the Dubai stock exchange, Dubai Financial Market (DFM).

Analysts, investment experts and funds, expect the region to witness a third wave of IPOs, this time coming from emerging financial technology companies in the region.

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Saturday, 30 September 2023