IPO MARKET: 2012: a year of high expectations

SunsetAfter the economy was battered by the financial crisis and the Arab Spring, 2012 was supposed to herald a recovery in initial public offerings in the Middle East and North Africa. Nadine Sharrouf of Zawya says not all expectations were met.

The amount of capital raised by companies in the Mena region through initial public offerings doubled from $853 million in 2011 to $1.7 billion this year, but fewer companies listed. By mid-December, there were five fewer initial public offerings (IPOs) than last year’s 16.

This year’s IPOs came from three countries: Saudi Arabia, Oman and Tunisia. The Levant was absent from the market because of political and economic conditions.

Saudi Arabia witnessed seven IPOs worth $1.4 billion, which made up most of this year’s capital, while the Muscat and Tunis stock exchanges saw two issues each, which raised $265 million and $7.81 million, respectively.

There was a great deal of investor excitement for the two Omani Islamic IPOs, as the introduction of Bank Nizwa and Al Izz Islamic Bank to the market brought to light an emerging market segment that is attractive for both investors in the region and elsewhere.

Bank Nizwa, established in the second quarter of this year, opened its doors for public subscription in April 2012 for a month. The IPO raised $159 million and was more than 11 times oversubscribed.

The bank’s listing in June 2012 on the Muscat exchange was awaited by eager investors who expected the share price to soar. But the increase of 12.75% after a day’s trading did not quite meet investors’ hopes.

The second Omani bank to issue an IPO before launching its operations was Al Izz Islamic Bank, which raised $106 million in October 2012 in a listing that was 1.15 times covered. However, its share price barely increased from the issue price of 0.102 Omani rials ($0.265). It notched 0.103 Omani rials after listing in the first week of December, showing a subsiding appetite from investors.

The fact that Bank Nizwa has yet to commence operations, while Al Izz has a possibility of delaying its start, has left investors wondering whether they were right to be bullish on these Islamic IPOs.

This leaves a pall of doubt over the third Omani IPO that should have taken place this year, that of Oman Arab Bank. Although the bank is established with a solid name and status, appetite for its shares may not be too strong.

The industrial manufacturing sector accounted for the greatest number and value of IPOs, as it did in 2011. Three Saudi firms and one Tunisian company raised $548 million.

Next, three firms in the financial services sector raised $281 million. The remaining companies belonged to the leisure and tourism, transport, healthcare and telecoms sectors.

The only difference from 2011 was the addition of the healthcare sector to the IPO market through the listing of Dallah Healthcare Holding Company, from Saudi Arabia, which closed its public offering at the end of November, raising $144 million.

Though other exchanges have not hosted IPOs, there were a total of 34 rights issues in 2012, worth $5.1 billion, coming from Muscat and Kuwait (six rights issues each); Amman, Tunis and Egypt (four each); Qatar and Saudi Arabia (three each); and Abu Dhabi and Casablanca (two each). Almost half the companies involved belonged to the financial services sector.

The relatively high amount of capital raised could be a good indication that the investment scene in the Mena region is growing more attractive, as companies will use the funds to increase operations and profitability, as well as for acquisitions.

Heading into 2013, the first month of the year has already set the dates for two IPOs, the Northern Region Cement Company, from Saudi Arabia, and Iraqi telecoms operator Asiacell. The latter’s listing has been delayed since August 2011. Two other Iraqi telecoms operators, Atheer Telecom Iraq and Korek Telecom, should probably follow suit, since they have been paying huge fines due to their delay in listing.

Other big names in the Saudi market have conveyed their plans to go public in the coming period. Among these are Saudi Binladin Group’s construction unit and Naghi Group, also from Saudi Arabia. Egypt could also be returning with the IPO of Integrated Diagnostics Holding after its formation, in addition to other countries that have been absent from the IPO market of late.

Nadine Sharrouf is an IPO research analyst at Zawya

©2012 funds global mena

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