The IPO boom in the Middle East could continue in 2024
2023 has been another dismal year for IPOs globally, but the Middle East has shined. This is expected to extend into 2024, writes Ahmad Abdel-Rahman.
Over the past two years, the energy-rich Gulf Co-operation Council (GCC) has emerged as a crowded market for initial public offerings (IPOs). Governments determined to move their economies away from oil sold stakes in state-owned companies while crude oil prices were high. Russia's exclusion from the MSCI Emerging Markets Index following its war on Ukraine and the slowdown in economic growth in China were among the reasons that prompted investors to look to the Gulf region.
Although listings raised less than half the amount they did last year, at USD10.5 billion, since, 2007, it was still the third-best year for stock markets worldwide, according to Bloomberg data. The GCC accounted for about 45 per cent of the total volumes of IPOs in Europe, the Middle East, and Africa in 2023, compared to 51 per cent in 2022. Last year, IPO revenues in the Middle East amounted to about USD23 billion, and in 2019 they reached USD31.2 billion. This is due to Saudi Aramco's record USD29.4 billion IPO.
Bankers do not expect the flow of IPOs in the Middle East and North Africa (MENA) to slow anytime soon, with the tailwinds of strong growth, government reforms and investor demand continuing.
"The outlook looks very strong for IPOs in the MENA region in 2024," said Christian Caban, head of capital markets at Bank of America in Central and Eastern Europe, the Middle East and Africa. The difference between 2023 and 2024 may be that in 2024, we expect to see more private companies entering the market, including the UAE."
Among the companies planning to list next year are low-cost airline Saudia, which has appointed banks for its potential bids, and supermarket chain Spinneys Dubai, according to Bloomberg News. Startups such as e-commerce company, Floward, and buy-now-pay-later company, Tabby, are also looking to list.
Strong performance in MENA
MENA's strong performance stands in sharp contrast to many other major IPO markets from the US to Europe and China. Globally, stock sales for the first time are experiencing their worst year since 2009. This comes as several high profile listings debut in modest trading, such as German sandal maker Birkenstock Holding Plc.
In the Middle East, the story is completely different. IPOs that raised at least USD100 million averaged gains of nearly 40 per cent. There is only one company trading in the red, Investcorp Capital plc, as the alternative investment firm listed on the Abu Dhabi exchange (ADX) fell 13 per cent from its offering price a month after its debut.
The strong performance of IPOs in the region is likely to keep investors coming back for more as many of the deals come with attractive dividend yields and provide exposure to previously underrepresented sectors.
Conflict in Gaza
Bloomberg says that it was certainly not easy for the region's markets, as the outbreak of Israel's war on Gaza in early October led to the MSCI index for GCC countries falling by 3.2 percent. Investors feared the conflict would spread, and since then, the index has rebounded 12 per cent as those fears eased.
Salah Shamma, head of equity investments for the Middle East and North Africa (MENA) at Franklin Templeton, based in Dubai, said: "The market is still in good shape and has not been affected by the conflict and things can remain completely under control. However, if the conflict escalates, it certainly could have a detrimental impact on risk premiums and how investors view the region."
Shamma pointed out that there is another danger threatening the IPO process in the Arabian Gulf region, which is the poor performance of stock sales. They are seen as a certain way to make money, especially if they are government-backed companies.
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