Dubai: The third quarter (Q3) of 2014 in the Gulf Cooperation Council (GCC) commenced with the holy month of Ramadan in July followed by the summer season in August underpinning the anticipated dry period in terms of IPO activity, with no listings on the GCC exchanges, according to PwC quarterly report.
However, in September the market began to recover and we saw two IPOs. The total number of offerings in the third quarter last year was relatively similar with only one IPO in August; however the proceeds raised were lower at $137.6 million.
The total number of IPOs in Q3 2014 was lower than the previous quarter where we saw seven offerings. However, the total value of the two IPOs in Q3 2014 was $1.6 billion, which is a 78% increase in total value compared to Q2 2014, where a total of seven IPOs raised $902.3 million.
Emaar Malls Group PJSC the largest IPO of the quarter listed on the Dubai Financial Market (DFM) and raised a total of $1.57 billion. The much anticipated IPO was oversubscribed and well received by investors. The second listing was by Zain Bahrain B.S.C on the Bahrain Bourse which raised $24.2 million.
Although there were no IPOs on the Saudi Stock Exchange in Q3 2014, the pipeline remains strong and there are several companies who have filed for their IPO with the Capital Market Authority (CMA), which we will see coming to market in Q4 2014 and Q1 2015. It will also be interesting to see how the opening of the Saudi market to foreign investors impacts the market for IPOs and new issuances.
“The volumes in Q3 were low as is typically expected for this period although the Emaar Malls IPO seemed to be well received, being several times oversubscribed. Activity levels we are seeing across the region are unprecedented in recent times and we should see the largest ever regional IPO in Q4 as Saudi Arabia’s National Commercial Bank launches its IPO raising what is expected to be in excess of USD 5 billion from its float,” Steve Drake, Head of PwC’s Capital Markets team in the Middle East region said.
Proceeds from European IPOs in the traditionally quieter third quarter settled back to USD 8.4 billion, from 28.3 billion in Q2 2014. Nevertheless, Q3 proceeds were more than double those of Q3 2013, USD 3.8 billion, primarily as a result of a number of large IPOs in July, including NN Group in the Netherlands raising USD 1.9 billion, FinecoBank in Italy raising USD 854 million and Logista in Spain raising USD 769 million. 2014 IPO activity has almost quadrupled compared to last year. In the nine months to September 2014, USD 51.1 billion has been raised by 289 companies, in comparison to USD 14.8 billion from 173 companies in the same period in 2013.
The exchanges of London, Milan and Euronext accounted for the majority of proceeds raised in the quarter, together contributing over 70% of the total IPO proceeds in Q3 2014. Euronext saw eight IPOs raising $2.2 billion, with the largest IPO of the quarter, NN Group, contributing almost 90% of exchange proceeds. Milan raised $1.4 billion from 10 IPOs and London continued to be the busiest IPO centre in Europe with 23 companies raising $2.4 billion.
The Middle East’s political volatility also contributed to the traditional quiet summer period in the region in terms of debt activity with the first two months of Q3 2014 being relatively slow. However, similar to IPO performance in the region, the month of September rebounded with strong issuances. Emirates NBD listed a $500 million bond on NASDAQ Dubai in September making it the largest issuer on the exchange. Also in September Burgan Bank, a Kuwait based company, issued a $500 million bond which was oversubscribed. Prominent sovereign issuances this quarter include the Kingdom of Bahrain acting through the Ministry of Finance which issued a $1.25 billion bond and the Central Bank of Kuwait which issued treasury bonds totalling $1 billion.
Sukuk sovereign issuances had an active third quarter this year, such as the Government of Sharjah issuing its first USD 750 million sukuk in September which was well received by regional and international investors. In addition, the Central Bank of Bahrain issued three sukuk al salam amounting to USD 286.5 million and two sukuk al ijara in the amount of USD 106.1 million. On the corporate front, Islamic Development Bank, a Saudi Arabia based company, was a prominent issuer this quarter with two sukuk issuances in the amount of $1 billion and $1.5 billion in July and September.
“Debt capital markets in the region have been relatively quiet in Q3 as expected over the summer season. However, in the past two years debt issuances in the region have proven to be resilient as investors believe the GCC is supported by strong macroeconomic and corporate fundamentals. Furthermore, as companies develop the need for financing or refinancing existing programs we should expect to see the revival of issuance that picked up in September continue into the final quarter of the year,” Steve Drake said.