PwC GCC Capital Markets Watch, Q4 2018: IPO Activity Picks Up Despite a Relatively Slow Year to Date Performance

2018 ended on a strong note for GCC equity capital markets activity, with Q4 being the best quarter in the year. A total of  five IPOs generated USD 1.03 billion, or 42% of the GCC’s annual IPO proceeds.

Although a positive end to the year, the final quarter of 2018 was still some way behind the eight IPOs and the USD 2.46 billion recorded in the same quarter of 2017.

Steve Drake, PwC Middle East Capital Markets Leader said: “The final quarter of 2018 ended on a strong note for GCC equity markets despite ongoing macro-economic and geopolitical uncertainties, which are expected to remain in the immediate future. As the market continues to adjust to this new norm, the opportunity lies in the hands of the companies that are able to adapt, innovate and compete against this still unfolding backdrop."

Regional IPOs

The Qatar Stock Exchange witnessed its largest IPO by proceeds in four years, with Qatar Aluminium Manufacturing’s listing generating USD 758 million - over 40% of the total proceeds raised in the GCC in 2018. Meanwhile, Tadawul continued to lead GCC stock markets, with the most active exchange by number of IPOs, while the Kuwaiti stock exchange performed strongly in terms of investment returns - possibly due to its inclusion in the FTSE Russell Emerging Market Index from September 2018.

REIT IPOs experienced a strong start in H1 2018 generating a total of USD 1.0bn (47% of total IPOs in 2018). However, demand for REIT IPOs cooled off in the second half of the year due to slow down in the real estate sector across the region and declining spreads between returns of REITs and deposit rates for safer time deposits.

GCC bond and sukuk issuances

Saudi Arabia was the largest sovereign bond issuer of the year, at a total of USD 14.2 billion. The largest corporate bond issuer of Q4 2018 was SABIC Capital II BV, at USD 2bn.

The decision to include GCC nations in JP Morgan’s Emerging Market Bond Index (EMBI Index) from January 2019 and the ascending tendency of oil prices were likely to have contributed to the overall GCC performance and boosted the issuance of GCC debts in 2018.

Steve Drake noted: “Despite increasing Federal interest rates, fluctuating oil prices and global economic downturns, the GCC bond market has shown commendable performance. It has delivered stronger risk-adjusted returns than many other traditional bond markets since 2013.”