Banks slash IPO fees in Gulf scramble for market share

• Gulf busy as IPOs slow elsewhere
• Banks work unpaid for months
• ‘Not helpful or healthy’ says analyst

Investment banks in the Gulf are cutting or even waiving fees to secure roles in regional initial public offerings (IPOs). 

As activity cools elsewhere, companies in the world’s largest oil producing region are selling shares to fund expansion.

With IPO activity slowing in the US, Europe and China, legal and financial advisors say the Gulf, especially the UAE, is being flooded with newcomers offering to work for free to gain market share.

Ahmed Ibrahim, managing partner at law firm Ibrahim and Partners, which has advised on nearly 20 IPOs in the UAE, says new entrant banks are accepting “minimal to no fees to secure a seat on a transaction”. 

The trend is “not helpful and not healthy to the market”, he says.

Fees are typically among the largest costs for companies when they go public. Globally, banks charge between 4 and 7 percent of the proceeds, according to global accounting company PwC. In the Gulf, the rate has been 2 to 3 percent, plus a discretionary bonus – a benchmark that is now being squeezed.

Last year, investment banking revenue in the Middle East and North Africa jumped 24 percent to $1.5 billion, the region’s third-highest on record, according to the data division of the London Stock Exchange Group. 

IPO-related work brought in $404 million, up 54 percent from a year earlier, with Saudi Arabia and the UAE accounting for nearly 80 percent.

Accounting company EY said 54 IPOs across Mena raised over $12 billion last year, up nearly 18 percent over 2023. 

IPOs in Saudi Arabia, completed and in progress, will have raised about $2.8 billion so far this year.

In contrast, IPO activity in other markets around the world has slowed. 

Swedish BNPL firm Klarna delayed a planned $1 billion New York listing after President Trump’s April 2 tariff announcements. 

German drugmaker Stada also postponed its IPO.

Financial services company S&P says US-driven global trade tensions could weigh on listings into 2025.

“The UAE became more attractive and busy in a global environment that was quiet,” says Prasad Chari, senior managing director for equity capital markets at Emirates NBD bank. “Automatically, more international banks wanted to get involved in local IPOs; we’ve seen this in India and Turkey too.”

The Dubai-based bank has been involved in bids where it was zero fees and banks had to pay for the seller’s travel because it was such a sought-after IPO, Chari says. 

Some banks are spending months on unpaid “readiness” work to improve the odds of landing a deal, he says.

“It’s a classic supply-demand equation: too many banks chasing a limited number of mandates, which puts downward pressure on pricing,” says Rawad Kassouf, head of equity capital markets execution and syndicate at Dubai-based investment bank Arqaam Capital.

Some global banks, including those that had exited the region, are now returning, Kassouf says

“We’re seeing several international players, like Jefferies, re-establishing a presence,” he says. “However, once activity resumes in their home markets, we expect [international banks’] focus on the region to diminish.”

• Saudi IPOs bounce back ‘quicker than expected’
• Dubai’s ICD could tap IPO market to fund expansion
• Dubai Residential REIT takes off on bourse debut

Competition is driving auditors and legal counsel to discount fees too, he says.

Jeffries Financial Group is a New York-City based global investment banking and capital markets financial services company.

Still, the fee war is not all good news for the share sellers.

“We’ve seen regrets – everything from delayed timelines and missed valuation windows to poor investor mix,” says Emirates NBD’s Chari.

“If they [the advisors] have got idle staff and want to stay busy, you may not get the [attention] if they secure another transaction that pays.”

If it is a first deal for the advisor, then the seller is getting someone with no experience, he says.

This level of competition, says Akber Khan, acting CEO of Al Rayan Investment, “obviously suits issuers”. 

But “ultimately, an issuer has the difficult decision on whom to trust for a transformational event in a company’s history”.