Activity in initial public offerings (IPOs) in the GCC countries slowed down in the first quarter (Q1) of 2015, slightly picking up pace in Q2 and further slowing down in Q3 of the year, according to experts.

Regional IPO activity in Q3 is usually slower due to summer holidays, Ramadan and Eid. This seasonal trend was perhaps exaggerated in Q3 as markets absorbed the impact of continued lower oil prices, growing geopolitical concerns and wider economic uncertainty, thus potentially impacting new issuers coming to market, according to PwC’s Capital Markets and Accounting Advisory Services team.

Although the trend in recent years has been lower activity during Q3, there was at least one listing in the GCC in that quarter. However, this year there were no IPOs in Q3. Looking at IPO activity in the same quarter in the prior year, there were two offerings raising a total of $1.6 billion, largely driven by the $1.5 billion IPO of Emaar Malls Group, and another four IPOs raising a total of $1.1 billion in Q2 2015.

Steven Drake, head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East, said: “The past months have proven to be challenging for companies wanting to come to market. With the continued volatility in oil prices, regional geopolitics such as Yemen and Syria, together with the slowing of the Chinese economy amongst other factors that transpired this quarter have weighed heavily on the equity markets and IPO issuances alike.

“Reflecting the weak market sentiment issuers have put any plans of listing on hold until market conditions improve and the right time to IPO emerges. We are now into the final quarter and we expect minimal or no activity amongst GCC corporates.”

Global IPOs

The IPO market in the GCC, to some extent, mirrors the global picture in terms of the trend in IPO activity demonstrating once again that the GCC economies cannot decouple from European or other main markets.

The global IPO market cooled during Q1 2015, improved in Q2 2015 and slowed in Q3 2015, partly reflecting the summer lull and, more importantly, suffering from increased volatility due to China-related concerns and the fear of a US Federal Reserve rate hike.

Global IPO money raised stood at $20.3 billion via 164 deals in Q3 2015, compared to $69.5 billion via 247 deals in Q3 2014 and $28.4 billion via 181 deals in Q3 2013.

Bond and sukuk markets

Low oil prices amongst other factors have taken their toll on the debt market in Q3 2015 and more so on corporate issuance in the GCC as liquidity tightens and investors are being more cautious on how they invest their money. This quarter we saw more activity from sovereign issuers as governments went to market to issue debt to make up for budget deficits resulting from falling oil prices.

Bond issuances

Despite the subdued corporate deals in the region in Q3, Etihad Airways and its partner airlines raised a total of $700 million. The initial issuance of $500 million was re-opened for investors following strong demand received.

The bond was priced at 6.875 per cent, tighter than the initial price of 7 per cent. Also in corporate bonds, Renaissance Services SAOG issued a two tranche ($and Omani Riyals) perpetual bond in the amount of $87.0 million and $38.5 million both with a coupon of 7.9 per cent. The bond was well received by Omani investors and marked the first international bond by a Muscat Securities Market listed Omani company.

On the sovereign front, the regional government were active players this quarter. The Government of Saudi Arabia was one of the issuers with a total of three issuances in the amount of $5.3 billion, $5.3 billion and $4.0 billion. The Central Bank of Qatar was another contributor to the sovereign bonds market with a total of four issuances in the amount of $1.1 billion, $1.1 billion, $398.0 million and $234.0 million.

Sukuk Issuances

In the sukuk market, Saudi Arabia was a key player with notable issuances such as the $426.6 million sukuk with a floating interest rate by Almarai Company in September. The issue was offered to private investors in Saudi Arabia. The National Shipping Company of Saudi Arabia issued a $1.04 billion sukuk with a coupon of 1.645 per cent.

The Central Bank of Qatar also tapped the sukuk market this quarter with a total of four issuances two in the amount of $467 million and the other two in the amount of $206 million.

“The debt market in the region was relatively muted this quarter despite the resilience witnessed in the past. Although we are accustomed to see lower activity during Q3, the low oil prices, concerns in China and US Federal Reserve rate hike as well as the regional political instability have all contributed to lower debt transactions by corporates and weak market performance,” Drake said.

“We still saw companies interested in issuing debt, however some had to delay their plans to Q4 as they hope for market conditions to improve.” – TradeArabia News Service