EY: IPO market in Saudi looks buoyant with major regulatory reforms underway

According to the EY Q4 2018 MENA IPO Eye, the IPO market in Saudi looks buoyant with major regulatory reforms underway, and the impending public listing of Saudi Aramco, Saudi Exchange, and other large government-related entities. Tadawul is also on its course to join MSCI’s emerging market index and has been swift in improving the regulatory environment and allowing foreign investments to be in line with global standards.

In the last quarter of 2017, Tadawul raised an announced value of US$110m, while Saudi’s parallel market, NOMU, saw a decrease by 48% in 2017 with no IPOs in Q3 2017 or Q4 2017. However, effective from 1 January 2018, the Saudi Capital Market Authority (CMA) has allowed direct investments by non-resident foreign investors on NOMU.

Gregory Hughes, MENA IPO Leader, EY says:

“We expect the MENA IPO activity to gain momentum in 2018 bolstered by economic reforms and privatization drive of countries such as Saudi Arabia and Egypt. This, coupled with improved oil prices, favorable government initiatives and strong investor appetite, is likely to spur more listings in the MENA, especially from leading regional government-entities. The IPO activity in the region is likely to see a mix of local and international floatings. In addition, family-owned, owner managed and private equity-backed businesses are also signaling their intention to go to the market during 2018; this again could include a combination of local and international offerings of different sizes.”

MENA IPO performance

In the fourth quarter of 2017, MENA IPO activity witnessed eight deals, representing a 60% surge in volume over the same period in 2016. The MENA IPO value, or capital raised, amounted to US$2.5b in Q4 2017, over ten times the capital raised last year.

The UAE led the MENA IPO market in value, having raised a cumulative of US$2.2b in capital, primarily contributed by the Emaar Development IPO (US$1.3b), which was the biggest IPO in the region since 2014. The UAE also saw another successful issuance in the form of ADNOC IPO which raised a capital amounting to US $850.9m.

In Oman, the Muscat Securities Market recorded the highest number of listings with three IPO deals during Q4 2017, raising a combined capital of US$81.9m.

Mayur Pau, MENA Financial Services IPO Leader, EY, says:

“The CMA’s recent updates could encourage more small and mid-cap companies to go public in 2018, leading to a rebound in IPO listings on NOMU alone. The IPO activity pipeline for the UAE, Kuwait, and Egypt also looks promising with major government-owned firms announcing their plans to go public within the next two years. The ADNOC IPO is one of the most successful regional issuances in recent times and it is likely to pave the way for more public listings from the MENA energy sector.”

GCC IPO value doubles compared to last year

Collectively, the GCC markets witnessed six IPOs deals in Q4 2017, recording a substantial volume increase of 200% from the same period last year, while the deal value rose by over 10 times the capital raised in the previous year, reaching US$2.4b in Q4 2017. The real estate sector raised the highest capital with US$1.3b, closely followed by the energy sector with US$850.9m. The REIT fund came third with a capital raised of US$110m.

Regional market to mirror surge in global market

Activity in the global IPO market surged in 2017 with the listing of 1,624 deals, raising an aggregate capital of US$188.8b. This is a significant growth trajectory in the number of deals listed (up 49%) and capital raised (up 40%), in comparison to 2016. This made 2017 the most active year for IPOs since 2007 and the global IPO market is projected to grow even further in 2018.