Once home to national oil companies and sleepy family businesses, the region is now a bright spot in the world for initial public offerings in a list market that elsewhere is crippled by concerns about the Ukraine war and global economic growth.
The last time oil was above $100 a barrel was in 2014, Saudi Arabia’s stock market was not open to foreign buyers, some of the biggest companies or oil firms were listed and international investors flocked to the region extensively on exchanges. was overlooked. According to FactSet, the now $100 a barrel oil has helped the stock markets of Saudi Arabia and Abu Dhabi to be the two best performers globally this year, both having gained more than 19%.
More than $7 billion of foreign capital flowed into Middle East stocks in March, a record month, according to investment firm Franklin Templeton.
Dubai-based Rami Sidani, Head of Frontier Markets at Schroders Plc, said, “The Middle East is at a sweet spot. We have investors flocking to the region looking for one of the best oil exposures in the emerging markets space. “
So far this year, the Middle East was the only region worldwide that reported an increase in the value of public listings in the first quarter, compared to the same period last year, led by share sales in Saudi Arabia and the United Arab Emirates, according to research firm For Deallogic.
In 15 deals, the companies raised nearly $10 billion from IPOs by April 19, compared to $300 million in the same period last year, prompted by governments privatizing state-owned firms. In contrast, Europe has raised $3.7 billion so far this year.
This month, Dubai, the United Arab Emirates’ commercial hub, raised $6.1 billion by listing part of the emirate’s water and power utility, the sector’s biggest IPO since oil giant Aramco raised $25.6 billion in shares in 2019. Billion sold.
The emirate’s government had planned to list only 6% of the Dubai Water and Electricity Authority, or DEWA, but tripled the number of available shares following global interest, including American asset managers BlackRock Inc. and Vanguard Group, As well as sovereign- wealth funds from Norway and Singapore, according to people familiar with investors.
The boom isn’t limited to the traditional energy and financial sectors. Recent Saudi listings include a pharmacy company, a food-delivery app, and a firm that runs a cold-storage warehouse. Real-estate development firms and water bottles are expected to follow soon.
In the rest of the world, IPO activity has fallen or remained flat in the first three months of the year, with bankers citing the Ukraine war, rising interest rates and warnings of an impending worldwide recession. ,
Rising inflation, falling oil prices or a global economic slowdown could curtail the good times in the Gulf market. National governments would retain control over many companies going public, reducing the influence of new shareholders and increasing the likelihood that companies would prioritize state policies over the interests of investors. Some investors are also wary of a sector where high-profile corporate scandals, notably private-equity firm Abraaj Group and hospitals operator NMC Health Plc, burned foreign buyers.
Still, Persian Gulf petrostats are some of the short-term beneficiaries of the high oil price, producing a coming-of-age with regulatory changes designed to encourage companies to list, bankers and investors said. .
“There isn’t a lot of activity happening globally,” said Sameer Deghaili, head of capital markets for the region at HSBC plc. “The Middle East stands up.”
Bankers and investors said that investors running funds dedicated to emerging markets are shifting capital to the Middle East from countries that were once magnets for investment but are now facing turmoil. Due to Russia’s invasion of Ukraine, MSCI Inc. And market-index compilers like FTSE Russell withdrew it from their emerging-market trackers. A government crackdown on the technology sector has spooked investors in China, and the recent economic crisis in Turkey, another important emerging market, has made it a less attractive place to invest.
Andrey Chakhtaura, head of investment banking in the region at Bank of America, said it “is increasingly regarded by investors as the only viable emerging markets.”
At the heart of the sector’s emergence is government policy designed to strengthen financial exchanges and cash out stakes in state-owned companies. The UAE and Saudi governments, in particular, have announced major economic reforms and are investing IPO proceeds to jump-start non-oil sectors.
Competition is also playing a part: Riyadh, Dubai and Abu Dhabi are all pushing companies to list on exchanges in those cities, each fighting for cash from global investors.
“It’s healthy for investors. It offers a bigger universe, more investment opportunities in the Gulf,” said Amwal Capital Partners, Riyadh’s co-founder and chief investment officer and Dubai-based alternative asset manager.
Saudi Crown Prince Mohammed bin Salman has said he wants the country’s exchange, the Tadawul, which is already the region’s largest with a market capitalization of more than $3 trillion, to become one of the world’s largest equity markets. has gone. Their efforts to attract direct investment from foreign companies, which involve greater exposure to local policies, have faced major hurdles.
The Saudi government is expected to sell more of Aramco on a local exchange, and the country’s sovereign-wealth vehicle, the Public Investment Fund, is encouraging companies in which it has a stake to list. Latest example: Digital security firm Elm raised more than $800 million for PIF in February.
In total, the Saudi exchange has received applications for 50 IPOs this year, according to Franklin Templeton, although they are unlikely to be listed.
“We’ve seen a bumper quarter in terms of issuance. This will continue well into the end of the year,” said Salah Shamma, head of equities at Franklin’s Region.
The seeds of the current IPO boom were sown in 2015 when the Kingdom of Saudi Arabia opened its market to foreign investors, and Prince Mohammed later said he would list a stake in Aramco.
Money flooded Saudi Arabia in 2019 when MSCI and the FTSE Russell added the country to their emerging market indices. The government then encouraged families and owners to list firms by offering incentives such as preferential treatment over government contracts. Abu Dhabi and Dubai followed suit.
The result is that there are now more listed companies in each market than ever before and in a broader spectrum of industries.
This story has been published without modification to the text from a wire agency feed