From Oil to IPOs: how the Middle East is delivering a wave of mega-listings
January 2023 Al-Monitor PRO Trend Report
2022 was a year to forget for IPOs across most major markets, with listing activity dropping sharply amid global economic turmoil and stock market volatility. IPOs raised $179.5 billion worldwide in 2022, down 61% compared to 2021, according to Ernst & Young (EY). That came after 2021 delivered a record-breaking year for IPOs globally, but a mixture of inflation, interest rate hikes and geopolitical turmoil sent stock markets tumbling, which saw more companies opt to stay private as valuations sunk and investors showed little appetite for new offerings.
Yet during this global market slowdown the Middle East hit the gas — literally. Gulf Cooperation Council (GCC) economies overall enjoyed strong economic growth in 2022 amid high energy commodity prices, which came as government initiatives coupled with strong investor demand helped deliver a banner year for initial offerings in the region. As of December, IPOs in MENA raised $23.9 billion in 2022, compared to $11.1 billion in 2021, according to EY. However, the number of regional listings dropped from 115 in 2021 to 65 in 2022, meaning that mega IPOs were driving the increase in proceeds. To that end, the Gulf produced three out of this year’s 10 largest IPOs globally.
Looking ahead, the global outlook for IPOs and stock markets in early 2023 still looks cloudy overall, despite a backlog of companies expected to list once conditions improve. For now, the wave of issuances in the Middle East looks positioned to continue into 2023, with an active pipeline of companies exploring offerings; however, the very real prospect of a global recession could bring the Middle East’s IPO boom back to earth in 2023.
1. The state of play: MENA’s IPO Boom
As global markets reeled in 2022, it was a breakout year for IPO activity in the Middle East, with Gulf countries welcoming record-setting mega-listings. The total value of regional IPOs was only surpassed by 2019, when Saudi Aramco raised $25.6 billion from its historic initial offering. The United Arab Emirates (UAE) and Saudi Arabia led the charge, with EY reporting that a combined 49 IPOs raised $22.7 billion (or roughly 95% of total proceeds from across MENA).
That included delivering landmark issuances, headlined by the $6.1 billion IPO of the Dubai Electricity and Water Authority, or DEWA, a state-owned utility giant. The offering was the fourth-largest in the world in 2022, as well as the largest in UAE history and the biggest in the region since Saudi Aramco. Another blockbuster came from Abu Dhabi petrochemicals firm Borouge, which raised over $2 billion, making it the largest ever IPO on the Abu Dhabi Securities Exchange (ADX). Meanwhile, Saudi Arabia’s Tadawul — the biggest stock exchange in the Middle East — welcomed the $1.36 billion IPO of Nahdi Medical and the $1.32 billion listing of Saudi Aramco’s refining unit Luberef.
Notably, this wave of Gulf companies going public saw zero listings in London, which frequently attracted regional firms in the past — a sign of how local capital markets are evolving. “We believe that a significant untapped potential exists in the region,” said Junaid Ansari, head of investment strategy and research at Kamco Investment, a Kuwait-based asset manager. Many initial offerings were significantly oversubscribed, with strong investor appetite underpinned by the promise of large dividend yields. IPO market booms often coincide with record index performance and 2022 was no exception, with GCC markets largely bucking global trends thanks to strong fundamentals and high energy commodity prices, noted Oliver Schutzmann, CEO of Iridium, a Dubai-based investor relations consultancy. “This naturally drew in the interest of the international investor community, offering opportunities they could not find elsewhere while aligning with their need to reposition away from Russia, which has been excluded from emerging market investments,” Schutzmann told Al-Monitor.
It helped that as the global economy dealt with shockwaves from Russia’s invasion of Ukraine, oil-rich GCC countries experienced more favorable conditions. According to the IMF, gross domestic product (GDP) growth in the GCC was expected to more than double to reach 6.5% in 2022 on the back of increased hydrocarbon production alongside dynamic non-oil contributions, with the highest growth rates expected in Kuwait and Saudi Arabia. Meanwhile, inflation was a factor but rates in GCC countries remained below regional and global levels. That saw Gulf countries largely sidestep global economic hardship, helping pave the way for a historic year for the region’s IPO market. “Moreover, the performance of GCC markets was better than the larger equity markets universe globally,” said Ansari. “This gave a significant valuation boost to companies that did IPO during the year.”
That said, a number of factors helped fuel this IPO bonanza. A key trend propelling market activity was the privatization of state-owned companies, which emerged as Gulf governments have been pushing economic diversification plans and eyeing more foreign investment. For instance, that saw Dubai list coveted public sector entities including DEWA, toll operator Salik and business park operator TECOM. Regional governments have been looking to expand and deepen capital markets alongside efforts to partially monetize and privatize certain assets, while also pushing to improve governance and transparency by increasing the number of listed entities, noted Greg Hughes, EY’s MENA IPO and transaction diligence leader. “This has a knock-on effect encouraging private companies [and] family groups to consider listing in the future,” he told Al-Monitor.
Alongside its efforts to deepen capital markets, local regulators are introducing a range of reforms. For instance, Saudi Arabia launched the Financial Sector Development Program in 2017 with the goal of increasing the value of the stock market as a portion of GDP to 88% by 2030, up from 66.5% in 2019 (excluding Saudi Aramco’s IPO). Among other moves, the kingdom’s Capital Market Authority announced new rules in 2019 allowing foreign issuers to list on the stock market. It also launched Nomu in 2017, a parallel market for smaller companies looking to access capital markets with lighter listing requirements. Nomu welcomed 40 issuances in 2022.
Still, there are signs this market exuberance may fade. Oil prices have softened considerably since early 2022, while the majority of regional IPO proceeds came in the first half of 2022, when DEWA and Borouge combined to raise roughly $8 billion. A number of newly listed firms have also since traded below IPO prices, such as DEWA, TECOM and Dubai school operator Taaleem. Notably, Luberef’s shares quickly slumped after debuting in December, too. That said, the IPO pipeline stayed strong through the end of 2022. In addition to Luberef, the MENA fast-food restaurant operator Americana executed a dual-listing on Tadawul and the ADX via a $1.8 billion IPO in November.
Ultimately, 2022 signaled that the Gulf’s financial markets have made real progress. “We believe that the capital market reforms made during the year will have a significant impact on the market activity going forward both in terms of liquidity and shared knowledge,” said Ansari, who pointed to more collaboration (like Americana’s dual-listing) helping support local capital markets in the future. In October 2022, Oman joined the Tabadul platform, enabling its listed stocks to trade on ADX and Bahrain’s bourse. Tadawul and Boursa Kuwait also signed a memorandum of understanding in December 2022 to boost cooperation. “These deals indicate the formation of a single GCC market for international investors that would be easy to access and to trade instruments across the region,” said Ansari.
2. A gulf between markets
While the UAE and Saudi Arabia drove regional IPO activity in 2022, most other regional countries were entirely missing from this boom, although there were some exceptions. Elsewhere in the GCC, Oman registered an IPO in early 2022, when Barka Desalination raised $11 million and listed on the Muscat Stock Exchange. Notably, in June 2022 the car distributor Ali Alghanim and Sons Automotive Company completed a $323 million private placement on Boursa Kuwait, making it the first listing on Kuwait’s exchange since 2020. However, there are signs GCC countries could play a larger role going forward. “We are seeing signs of future increased activity in Oman, Kuwait and potentially Qatar,” said Hughes, who reports EY is working on IPO preparation projects in all of these countries.
Across the wider region, Egypt saw little IPO activity as the country’s fragile economy grappled with shocks triggered by the war in Ukraine. EY’s Hughes reported having waited for multiple offerings in Egypt, especially government backed listings. “But they seem to have stalled for various reasons, not least currency issues,” he said. The Egyptian Exchange only welcomed two IPOs in 2022, Enterprise Press reported, down from four in 2021. That included seeing cosmetics company Macro Group Pharmaceuticals go public in February by raising $82.7 million. However, 2022 also saw the Egyptian government outline plans to privatize state-owned companies, with a goal of attracting $40 billion in investments over the next four years by selling stakes to local and international investors. In May 2022, Egypt’s prime minister announced that 10 state-owned and two military-owned companies would list in 2022. Those moves never materialized.
Meanwhile, IPO activity plunged in Israel in 2022, while its vaunted high-tech industry started to slow down after years of rapid growth. Tel Aviv’s stock exchange (TASE) saw 13 new companies conduct IPOs in 2022, which raised a total of $714 million. That comes after TASE welcomed public offerings from 94 new companies in 2021, which raised $3.2 billion and represented the highest number of listings since 1993. The majority of 2021 IPOs on TASE came from high-tech companies and R & D partnerships.
Alongside a geographic IPO imbalance in 2022, there was also a disparity around the industries producing activity. The Gulf saw mega-listings from utilities, oil and gas, petrochemicals and retail, but some sectors saw comparatively little action compared to global trends. The most notable is tech, which continued to lead by volume of IPOs globally in 2022 by accounting for 23% of deals, according to EY. However, the tech sector is not known for producing many local listings outside of Israel. That made it significant when Bayanat, an Abu Dhabi-based geospatial intelligence solutions firm, listed on ADX in October after raising $171 million.
Elsewhere, other MENA tech companies opted to bypass regional exchanges altogether: In April 2022, the Dubai-based transport company Swvl — one of the Middle East’s best-funded tech startups — began trading on NASDAQ in the United States via a special-purpose acquisition company, or SPAC. That came after regional music streaming service Anghami became the first Arab tech company to list on NASDAQ when it began trading in February 2022. It also went public via SPAC. Both companies have since seen their share prices crater, with Swvl now at risk of being delisted.
3. MENA IPO outlook: A solid pipeline
• The GCC’s IPO pipeline remains active heading into 2023, as many companies have announced plans to list. “We are working on multiple processes in various countries to help companies prepare for their IPOs,” Hughes told Al-Monitor. Many are bullish on the Middle East’s potential, which is seeing global banks hiring in the region despite pulling back elsewhere. Goldman Sachs is looking to tap deals in the Middle East, with a regional executive telling Bloomberg that the bank expects this year's rush of Gulf IPOs will continue into 2023 as demand for regional assets grows and more private companies come to market. Simultaneously, JPMorgan Chase, Citigroup and others are eyeing more regional business, too.
• Expect IPOs of state-linked firms to loom large once again in 2023, even if more privately owned firms and family owned groups join the fray. Already, Abu Dhabi National Oil Company (ADNOC) has announced that it intends to list a minority stake of a newly created gas processing and marketing company on the ADX in 2023. Elsewhere, regional companies that could IPO include regional broadcast giant MBC Group, oil and gas drilling firm ADES International, supermarket chain Lulu Group International, health-care group Pure Health, oil driller Abraj Energy Services, conglomerate Alghanim Industries, and money-exchange firm Al Ansari Exchange, among others.
• However, economic headwinds should have an impact. “We expect to see overall activity recede from the record levels seen in 2022 as equity markets are expected to remain under pressure globally due to fears of recession next year,” Ansari told Al-Monitor. Amid those recession worries, a number of factors are clouding the outlook for regional IPOs, including rising interest rates, persistently high inflation, geopolitical issues, volatility in global equity markets and valuation adjustments across sectors — all factors that have resulted in IPO activity effectively shutting down in many other capital markets, noted Hughes. “We are in a rather uncertain period,” he said.
• It is challenging to expect three consecutive years of historic records in the Gulf IPO market, said Schutzmann, while hydrocarbon prices may experience additional volatility driven by a global macro slowdown. In this environment, he advises IPO candidates to be more flexible on valuations and the timing of placement. “Yet the region's integration into the emerging markets universe will continue,” said Schutzmann, pointing to the fact that four out of six GCC countries are already classified as “emerging” and now account for 7.9% of the MSCI Emerging Markets Index, compared to less than 2% just seven years ago.
• Looking ahead, expect the UAE and Saudi Arabia to remain the primary producers of high-profile IPOs in 2023. “We also expect Saudi Arabia to lead in the region once again in terms of offerings in the near term due to significant capital requirements to keep the pace of economic development in the country,” said Ansari, who added that recent announcements have shown that Oman is keen on deepening its capital market and has appointed advisers to help promote public offerings, diversify capital market solutions and encourage investment. Schutzmann echoed this, noting that Oman’s investment authority could potentially list several of its assets in a bid to drive investment and strengthen market performance.
• One key indicator for how IPO activity will play out in the Middle East in 2023 could come from Saudi Aramco: The oil giant has been exploring a listing of its trading arm, Aramco Trading, which could be valued at more than $30 billion. As of October, Aramco was pushing ahead with a listing by early 2023, but the IPO could be delayed or canceled if market conditions worsen, Bloomberg reported.
• Ultimately, 2023 is shaping up to be another interesting year for the Middle East’s capital markets and could see the region either continue defying global trends or come back to earth — perhaps a mixture of both. “Nevertheless, renewed efforts from countries like Oman and existing potential from Saudi Arabia and the UAE should keep the market active,” said Ansari.
4. Case study: Americana Restaurants
Founded in Kuwait in 1964 and now based in the UAE, Americana operates 2,050 restaurants across 12 countries in the Middle East and in Kazakhstan, including ubiquitous brands like KFC, Pizza Hut, TGI Fridays and Krispy Kreme. The company, owned by Emirati property tycoon Mohamed Alabbar and Saudi Arabia’s Public Investment Fund, pulled off an unprecedented IPO in 2022 when it conducted a dual-listing on Tadawul and ADX after raising $1.8 billion. That marked the first instance of a simultaneous share float between the two exchanges, which struck an agreement in 2019 to establish effective cooperation on dual-listings between their financial markets. Americana was previously traded on Kuwait’s stock exchange, before delisting in 2018. In a sign of significant interest around the cross-border deal, the offering was oversubscribed by 58 times, attracting total orders of $105 billion from institutional and retail investors, with Americana selling 2.527 billion shares, or a 30% stake. The company’s share price has risen on both exchanges since debuting in early December.
Amid a big year for Gulf IPOs overall, Americana’s dual-listing is an important sign of how capital markets in the region are evolving, as the agreement between Tadawul and ADX opens up new opportunities for companies in the region. For Americana, the dual-listing provides access to a larger pool of capital, additional liquidity and the ability to see its shares trade for slightly longer periods since Saudi Arabia and the UAE are in different time zones. Still, going this route also means companies have to satisfy two regulators and the process comes with more associated costs. For investors, the dual-listing means shares will be fully fungible between the exchanges and will hold the same economic and voting rights; after debuting, the market price on each respective exchange will be determined by trading activity.
Americana’s IPO should pave way for more cross-border deals in the region, as the offering is expected to encourage more such issuances going forward. The possibility of additional dual-listings in the region stood out as an important development for EY’s Hughes in 2022, which is underlined by the additional memorandums signed between exchanges. Kamco’s Ansari echoed this. “We believe that the future of capital markets in the region would be supported by a shared and collaborated development,” he told Al-Monitor. “We saw the dual-listing framework work smoothly.”
5. Key takeaways
⮕2022 was potentially a transformative year for capital markets in the Gulf countries after the region was one of the few bright spots for IPOs globally. The flurry of initial offerings and robust interest from investors signals that efforts by regional governments and regulators to develop capital markets and boost liquidity are proving successful.
⮕Key regional exchanges all saw notable developments in 2022: The Dubai Financial Market in particular took a big step forward by delivering DEWA’s historic IPO, while Tadawul and ADX showed the promise of dual-listings.
⮕The Middle East is clearly becoming more attractive to investors and it is expected to continue integrating further into the emerging markets universe. Plus, the progress made by local capital markets also makes it seem less likely that regional companies will opt for overseas listings in London in the future.
⮕After Americana’s successful dual-listing, the potential for cross-border deals adds an interesting new layer to local capital markets and authorities seem keen to encourage the practice going forward. Dual-listings can also make the Middle East a more attractive destination for global brands to consider a regional offering, as they can tap investor demand in multiple markets. Evidenced by the number of recent agreements struck by regional countries, collaboration between local exchanges should become more prominent going forward.
⮕The Gulf looks well-positioned to continue producing IPO riches in early 2023, thanks to a solid pipeline of companies already expected to list. There certainly are still untapped IPO opportunities to be found going forward, including the potential for more landmark issuances: Aramco Trading could deliver a mega-listing, and so could regional oil and gas drilling firm ADES International, among others.
⮕After listing activity in 2022 was propelled by state-led IPO programs, more family businesses and privately owned firms could be enticed to liquidate ownership stakes in the future. However, government privatization plans will remain important if elevated market activity is to persist or kick off in other regional markets.
⮕Saudi Arabia and the UAE were the primary players producing IPOs in 2022, but activity from other GCC countries will be a key area to watch going forward. Oman, Kuwait and Qatar are all showing signs of increased activity.
⮕Meanwhile, Egypt will be an interesting player to monitor in the years ahead thanks to a government push to privatize state-backed firms and those owned by the military, but until further notice market activity looks stalled as the country grapples with currency issues.
⮕Still, the Middle East’s IPO boom may fade in 2023, as a litany of factors could coalesce to undercut the market amid ongoing global economic turbulence and recession fears. Expected listings could easily fail to materialize or get delayed until 2024 (or indefinitely). It also shouldn’t be surprising to see lackluster share performance in 2023 from recently listed firms; that is already becoming a trend after several regional companies have watched shares trade below IPO prices in recent months. In a troubling sign for future listings, Luberef’s shares sunk upon its debut in December.
⮕Regardless, the region will be hard-pressed to surpass the historic IPO activity witnessed in 2022, as the majority of proceeds came in the first half of the year on the back of the two largest listings in UAE history. That said, the existing potential in Saudi Arabia and the UAE alongside potential listings from Oman should be enough to keep the Gulf’s IPO window from snapping close in 2023.
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