Activity in the initial public offering (IPO) segment in the GCC witnessed a slowdown in both the number of offerings and total proceeds raised during the second quarter (Q2) of 2017, a report said.
Saudi Arabia hosted the only three IPOs of this quarter; they were allocated between Saudi Stock Exchange primary market (Tadawul) and the parallel market (Nomu).
On the primary exchange front, the only offering in Q2 2017 was by Jadwa REIT Alharamin Fund, which floated a total of 36 million shares, raising proceeds of $96 million. The primary objective of the Fund is to provide its investors with current income by investing in income-generating real estate assets in Saudi Arabia, with a principal focus on the Holy Cities of Makkah and Madinah.
On the parallel market front, the first and largest offering in Q2 2017 was by Thob Al-Aseel, which floated 3 million shares, raising proceeds of $68 million. Al Aseel is engaged in import, export, wholesale and retail in textiles and readymade garments. The second offering was by Al Kathiri Holding, which floated 0.8 million shares, raising proceeds of $6.7 million. Al Khathiri manufactures and distributes construction materials through its subsidiaries.
Period to period performance
In terms of IPO performance in Q2 2017 compared to the same period in the prior year, the number of offerings has slightly increased, with three IPOs in Q2 2017 compared to two IPOs in Q2 2016; however the total proceeds raised in Q2 2017 was 38 per cent lower compared to Q2 2016.
Further, IPO activity in the first half (H1) of 2017, witnessed an increase in the number of offerings (13) compared to H1 2016 (three), which was largely due to the increased activity in Q1 2017; however proceeds raised in H2 2017 were 23 per cent lower as compared to H1 2016.
Steve Drake, head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East said: “During Q2 2017, the Kingdom of Saudi Arabia continued to be the main driver of IPO market activity in the GCC, while the NOMU parallel market for small and medium-sized enterprises in the Kingdom remained popular among investors.”
Globally, IPO activity in Q2 2017 increased by nearly 50 per cent in terms of both proceeds and the number of IPOs compared to Q2 2016. Compared to Q1 2017, activity also increased in Q2 2017, though less pronouncedly. In total, 379 IPOs raised $52.6 billion compared to $35.2 billion via 253 IPOs in Q2 2016 and $68 billion via 420 IPOs in Q2 2015.
Bond and sukuk markets
The appetite for debt issuance in the GCC surged throughout Q2 2017. Sovereign issuance by GCC governments remained the main theme, whilst the quarter saw Saudi Arabia issue its first US dollar denominated sukuk, raising proceeds of $9 billion. The GCC main economies maintained high credit quality and investment grade status.
Corporate bond issuance remained very active across the region while sovereign bond issuance activity slowed down in Q2 2017. In the UAE, Industrial & Commercial Bank of China Limited - Dubai Branch (“ICBC”) listed three bonds on Nasdaq Dubai, amounting to $400 million, $300 million and EUR500 million. In Saudi Arabia, Acwa Power Management and Investments issued bonds amounting to $814 million. In Kuwait, National Bank of Kuwait (NBK) issued non-guaranteed bonds of $750 million as part of its medium-term bonds issue programme.
On the sovereign front, the government of Saudi Arabia was the biggest contributor in the region, issuing a $9 billion Islamic sukuk, followed by Oman’s $2 billion issuance. The Saudi Arabia sukuk was structured into a $4.5 billion five-year sukuk tranche at 100 basis points over the mid-swap rate and an equal-sized 10-year tranche at a spread of 140 basis points to the benchmark. The Oman seven year sukuk was structured at 235 basis points to the benchmark.
On the corporate front, Dar Al-Arkan Sukuk Company issued a $500 million sukuk. The issuance received significant interest from international market participants with the order book close to SAR 4 billion ($1.05 billion), equal to two times of the amount issued.
“Debt issuance in the GCC countries remained popular throughout Q2 2017 as GCC governments’ sovereign issuance were oversubscribed domestically and internationally. However, consecutive interest rate hikes by US Federal Reserve may hamper GCC government debt appetite, while a hawkish policy would trigger a surge in borrowing cost across the global and regional debt market,” Drake said.
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