Late-year flurry of flotations forecast for Gulf

Alamy via Reuters

• Cash raised so far down 24%
• But expectations are high
• Good pipeline for 2025

Headline figures may suggest the number and combined value of Gulf initial public offerings is ebbing. But a flurry of late-year flotations should enable the 2024 totals to equal or eclipse those of 2023.

Demand from investors, especially foreign institutions, for new Gulf IPOs and for greater exposure to the Gulf’s economies, indicates a growing confidence in the region.

“Perceptions of geopolitical risk used to be front and centre in foreign investors’ thinking,” says Ashish Marwah, chief investment officer at Neovision Wealth Management in Abu Dhabi.

“Now, they’re assessing the Gulf from a completely different perspective, and geopolitical tensions do not deter them. The foreign money that is buying into Gulf IPOs is here to stay.”

There were 30 IPOs across the GCC countries in the first nine months of 2024. Combined, these raised $5.2 billion. This is one IPO fewer, but 24 percent less money raised than in the same period in 2023, according to the Kuwaiti asset management and investment banking centre Markaz.

Tarek Fadlallah, CEO of Nomura Asset Management Middle East in Dubai, says: “The Gulf IPO market remains buoyant. In a global context, the GCC remains one of the most active markets for IPOs.”

The volume of IPOs in the United States has been lacklustre this year, despite the country's stock market hitting new all-time highs, while Gulf equity indexes have been more subdued in comparison.

“The main differentiator in the GCC is an historic backlog of state-owned enterprises that have both the capacity and the strategy from their government shareholders to diversify or divest their holdings in these entities,” Fadlallah says. “It's not the only thing driving it, but it’s a significant factor.”

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The flotations of the UAE supermarket chain Lulu International, Oman's OQ Exploration and Production and other late-year listings should enable IPO proceeds for 2024 to equal or exceed those of 2023, says Shakeel Sarwar, head of asset management at Bahrain’s Sico Bank.

OQEP raised $2 billion in a mid-October IPO, while Lulu’s will close on November 5 and should raise up to $1.8 billion, Reuters reported.

In 2022, Gulf IPO fundraising was at a high as 46 flotations raised $22.7 billion combined. The 2022 flurry came after a hiatus caused by the Covid-19 outbreak. Last year, 46 Gulf IPOs netted $10.7 billion from subscribers, which was still a healthy performance, Sarwar says.

More narrowly, there were seven IPOs in the period from July to September 2024, which raised $1.7 billion combined, Markaz estimates. Abu Dhabi’s NMDC Energy provided the bulk of this, selling shares worth $1.1 billion.

Marwah says: “I've always been most bullish on the UAE because it's such a business-friendly environment and much more entrepreneurial than other GCC countries. The variety in business models of companies going public reflects this – it’s not just state divestments.”

All other third-quarter IPOs were in Saudi Arabia. They spanned the materials, consumer, commercial and professional services and food and beverages sectors, Markaz says.

In the 2025 pipeline, more than 50 Saudi Arabian companies are waiting to list on the kingdom’s bourse, Sarwar says.

“We expect IPOs from the UAE to continue and Oman to prominently feature in the deal list in the next one to two years,” he says. Saudi Arabia and UAE will dominate IPO activity, “with notable transactions expected from sectors such as consumer and airlines”.

In September, the US Federal Reserve cut the benchmark US interest rate by 50 basis points. Its pledge to reduce rates further bodes well for Gulf IPOs, Fadlallah says.

In the Gulf region, most corporations’ borrowings are based on Eibor, the UAE interbank interest rate, or Saibor, the Saudi interbank interest rate, which are short-term rates, and these are more likely to fall next year, Fadlallah says. “That’s positive for equity valuations and stock markets in general.”

High interest rates had spurred Gulf investors to place a sizeable proportion of their liquidity into fixed-term bank deposits, usually for periods of three to 12 months. When these expire, the rates that banks offer on such accounts will be lower and should lead to money returning to other asset classes, including equities, Fadlallah says.

“IPOs will benefit, too. The amount of money regionally that has been tied up in fixed deposit accounts is significant,” he says.

Sarwar gives a similar view. He believes that lower interest rates will draw recurring income-seeking investors to the IPOs of companies that offer high dividend yields.