Middle East companies will return to the IPO trail
After nearly grinding to a halt in 2011, with less than USD 1 billion raised, IPO issuance in the Middle East and North Africa (MENA) picked up speed somewhat in 2012 to touch the USD 2 billion mark. While this improvement is welcome, activity remains far lower than in the all-systems-go days before the global financial crisis struck in 2008.
So is the IPO market stuck in the doldrums? My conversations with potential issuers and advisers lead me to strongly believe that the answer is no. The number of companies that are considering an IPO on Nasdaq Dubai is growing, and the range of interested companies is also increasing, including enterprises in countries and sectors that have not traditionally looked to the exchange for a listing, as well as small and medium-sized companies.
Not every expression of interest - whether made privately to the exchange or announced publicly - will lead to an early listing, of course. But there has been a distinct change in the tone of Nasdaq Dubai's discussions with potential issuers in the past few months, towards when they will list rather than if, and towards companies actively preparing for an IPO (taking steps to put corporate governance into shape, holding serious talks with advisers, etc.) rather than merely considering it.
There are a number of reasons for this more positive mood. On the macro level, there is a growing appreciation of the UAE's political stability, plus a recognition that its economy is gearing up for higher activity, providing new opportunities for companies to make profits.
I believe these factors have contributed to the steady increase in UAE share prices over the second half of 2012, a rise that has caught the attention of several companies that are thinking of listing.There is also a greater realism on IPO pricing among potential issuers these days. Even if the economic backdrop continues to improve in 2013, as I believe it will, companies will no longer expect the unrealistically high price/earnings ratios on listing that were sometimes achieved before 2009. The capital that can be raised in actuality in today's markets can be more than enough to justify a decision to list. This new attitude, which emerged over 2012, makes companies more amenable to the idea of going public sooner rather than later.
Another key element in the thinking of potential issuers in the Middle East is a growing appreciation of the benefits of listing on an international exchange that is based in their own region - getting the best of both worlds, in other words. The international links provided by Nasdaq Dubai include a membership roll-call of most of the leading global investment banks, which is unique among exchanges in our region. This in turn provides easy access for fund managers and other investors around the world to buy stocks listed on the exchange.
Nasdaq Dubai is also underpinned by international regulatory standards, providing particular comfort to issuers and investors alike in a period of global economic volatility. The high visibility around the world that can go hand in hand with listing on an international exchange - ranging from increased press coverage to attracting the attention of research analysts - is another big advantage for the many Middle East companies with ambitions to grow on the global stage.
As more Middle East companies have experimented with listing on overseas international exchanges in recent years, it can clearly be seen from the outcomes that the grass there is not greener.
The prospects of a renaissance of the regional IPO market are therefore very real. An extra reason for this is that IPO advisers are more realistic these days in the size of fees they charge (though I'm not sure that they'll thank me for saying so!).
This IPO revival will not happen overnight, and I do not wish to be drawn into pronouncing on timelines, numbers of listings etc. But happen it will, and I believe it will take place in tandem with the welcome growth that is under way in regional debt issuance. Different sectors of the capital markets will expand in complementary fashion.
About the author
Chief Executive Officer, Nasdaq Dubai
Mr Ali was appointed Chief Executive Officer in July 2013, after serving as Acting Chief Executive Officer since August 2012. He previously served as Executive Director of Nasdaq Dubai from 2006 to 2008. His experience includes serving as Chief Operating Officer of DIFC Authority and most recently as Executive Director at the Dubai Knowledge & Human Development Authority.
Mr Ali played a key role in the development of the Dubai Strategic Plan 2015 and participated in number of strategy development exercises. These included Nasdaq Dubai’s strategy in 2006 where he had the role of overseeing the implementation of the Market of Markets strategy expanding the exchange’s activities beyond the equity and debt markets into derivatives and other sectors.
Mr Ali holds an Executive MBA from London Business School, a B.Sc. in Applied Computing from Leeds Metropolitan University, and a Master Certificate in Project Management.