The Gulf Cooperation Council (GCC) initial public offering (IPO) market continues to remain sluggish with only two listings in the region in the third quarter of 2011 as compared to the three in the second quarter, says PricewaterhouseCoopers (PwC), a leading international professional services organisation. Both the IPOs in the third quarter 2011 were in Saudi Arabia raising a total of $219 million, with Hail Cement Company raising $131 million and United Wire Factories Company raising $88 million.
Total deal value was down 36 percent or $121 million compared to second quarter of 2011 but showed an improvement of 26 percent or $46 million in comparison to the same period last year, PwC's third quarter Capital Markets Watch Report found. Steve Drake, Head of PwC Capital Markets Middle East, said, "IPO activity in third quarter has followed similarly flat levels as seen in second quarter 2011. This is to be expected over the summer months and through Ramadan, with any IPO activity we are likely to see being in fourth quarter or more likely into 2012. Of the regional markets, we continue to see Saudi Arabia being the strongest IPO market and so expect to see continued IPO appetite in the Kingdom albeit at levels lower than we have seen previously."
In Europe, there were 121 IPOs during the third quarter of the year, raising $12.7 billion, PwC's third quarter IPO Watch Europe Report found. Of the money raised, $6.8 billion came from privatisations in July of government-owned assets in Spain and Poland as well as $3.4 billion from the IPO of Dia, the Iberian discount supermarket retailer. The last few weeks of September saw the European markets slumping further due to political and market uncertainties with only $31 million being raised on European exchanges. The extent of market turmoil was reflected in the postponement of the Spanish national lottery IPO in September. There has been a stream of IPO postponements and withdrawals in Europe throughout 2011 but the IPO pipeline remains relatively stable despite the market turmoil.
Sovereign conventional bond issuances during the third quarter of this year included a $4.2 billion bond issued by the Central Bank of Kuwait comprising a $3 billion bond and $1.2 billion treasury bond component. As for corporate entities, conventional bond issuances have largely been subdued with Abu Dhabi based Tourism Development & Investment and Dolphin Energy deferring debt offerings during the quarter.
Amongst the noteworthy corporate debt issuances was National Bank of Abu Dhabi's $124.4 million yen-denominated Samurai bond and $20 million private placement, with the instruments carrying a fixed coupon rate of 2.6 percent and 4.8 percent respectively. "The turmoil we are witnessing in both Europe and the US is having an inevitable impact on the regional credit markets as investor appetite in these two economic zones for Middle East debt has historically been strong. Until such time as we see stability in these markets, it is likely that we will see lower debt issuance volumes or perhaps a shift toward a heavier Asian market bias for Issuers," Steve Drake added.
The sukuk market continues to grow globally due to an increasing interest in Islamic modes of financing. However, sukuk issuances in the GCC region have slowed down during third quarter of 2011 compared to the performance in the first six months of this year, which was dominated by a $9.1 billion sukuk issuance by Qatar Central Bank. Sovereign issuances during the third quarter of 2011 included the Central Bank of Bahrain's $302 million issue which carries a coupon between 0.7 percent and 0.9 percent. Amongst the largest corporate sukuk issuances in third quarter of 2011 was First Gulf Bank's $650 million issue with a tenor of five years to be traded on the London Stock Exchange. Other significant corporate issues during third quarter of 2011 included the first publicly listed $480 million corporate sukuk issuance by Saudi International Petrochemical Company on the Saudi stock exchange with an expected return of SIBOR plus 1.75 percent and a tenor of five years.
The international debt market has been jolted by the current economic crisis stemming from the US and Europe which has stagnated growth and sounded alarm bells for another bout of recession. Sovereign debt woes have plagued the European economies such as Greece, Spain and Italy compelling the IMF to cut global growth forecasts for the remainder of 2011. The last few weeks of September saw a mass exodus of bond-related capital with investors exiting riskier assets depicting fraught market confidence. We have seen this turmoil impact the regional debt market with fewer issuances in third quarter of 2011 as compared to the second quarter of 2011 and third quarter of 2010.
Notes:
1. About Capital Markets, Watch GCC Capital Markets
Watch GCC surveys bond conventional and Islamic issuance and new primary market equity IPOs on GCC's principal stock markets and market segments (including exchanges in Kingdom of Saudi Arabia, Kingdom of Bahrain, Kuwait, Oman, Qatar and United Arab Emirates) on a quarterly basis. This survey was conducted between 1 October and 20 October 2011 and captures the relevant data based on their transaction date. Capital Markets Watch GCC is prepared by PricewaterhouseCoopers Middle East (www.pwc.com/middle-east). All market data is sourced from publically available information and has not been independently verified by PricewaterhouseCoopers.
2. About IPO Watch Europe
IPO Watch Europe surveys all new primary market equity IPOs on Europe's principal stock markets and market segments (including exchanges in Austria, Belgium, Denmark, France, Germany, Greece, Holland, Ireland, Italy, Luxembourg, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the UK) on a quarterly basis. Movements between markets on the same exchange and greenshoe offerings are excluded.
IPO Watch Europe is prepared by PricewaterhouseCoopers LLP (www.pwc.com/uk) a limited liability partnership incorporated in England. PricewaterhouseCoopers LLP is a member firm of PricewaterhouseCoopers International Limited. All market data is sourced from the stock markets themselves and has not been independently verified by PricewaterhouseCoopers LLP. IPO Watch Europe Surveys and annual reviews are available at: http://www.pwc.co.uk/eng/publications/IPO_Watch_Europe_previous_editions.html
3. About the PricewaterhouseCoopers' Capital Markets Group in the Middle East
The Capital Markets Group in the Middle East is part of the PricewaterhouseCoopers global network of capital markets specialists who provide a broad range of advisory services to companies and investment banks in connection with capital market transactions. These include preparations for becoming a public company, selecting the right market and advisory team, assisting with reviewing accounting policies and GAAP conversion projects, advising on regulatory issues and undertaking financial and business due diligence investigations.
4. About PricewaterhouseCoopers
PwC firms help organisations and individuals create the value they're looking for. We're a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com.
Established in the Middle East for 40 years, PwC has firms in Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, the Palestinian territories, Qatar, Saudi Arabia and the United Arab Emirates, with around 2,500 people. (www.pwc.com/middle-east) "PwC" is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services .Together , these firms form the PwC network.
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