Middle East IPO market faces subdued outlook for rest of 2020

Despite enjoying a strong first quarter, the initial public offering (IPO) market in the MENA market is set to face a subdued outlook over the next six months as the effects of Covid-19 take shape, according to experts from professional services firm EY.

EY’s stark warning comes on the back of its latest MENA IPO Eye Report, which revealed an uptick in IPO volume and value for the first quarter 2020. The MENA market saw four IPOs that raised more than $800 million at the start of the year – representing a staggering fourteen-fold year-on-year increase from $58 million in the first quarter of 2019.

Although IPO activity in the region has been strong in recent years, the landmark Saudi Aramco deal at the end of 2019 – which took the company to a $2 trillion valuation – has sparked renewed interest in GCC listings, according to EY. As a result, Saudi Arabia led the way in the first quarter of this year as well.

The Saudi Stock Exchange accounted for two of the four listings in MENA this year, making up nearly $750 million of the total IPO funds. More than $700 million of this was accounted for by Dr. Sulaiman Al-Habib Medical Services Group, which issued 15% of its stock. A 30% share issue by Sumou Real Estate Co raised the rest of the proceeds at the Saudi Stock Exchange.

The other two MENA listings came from Oman and Egypt. Aman REIF in Oman issued half of its stock for just over $50 million, as a Real Estate Investment Trust listing on the Muscat Stock Exchange. Meanwhile, a 28% share issue by Emerald Real Estate Investments raised $13 million in Egypt.

Despite the promising activity, Matthew Benson, MENA Transaction Advisory Services Leader at EY, calls for managed expectations, as the Covid-19 crisis combined with a struggling oil market is dampening this vibrant environment, at least for the remainder of this year.

“The drop in economic growth and disruption across various industries caused by the pandemic, as well as the decline in demand for oil, and reduction in oil prices, have forced potential issuers to rethink timelines and delay their bourse debuts – a prudent move given the current market scenario,” he said.

Examples of such revised timelines are emerging in Egypt, which was expecting to see 14 IPOs over the course of this year but is now grappling with considerable delays. Other markets are in the same boat, although regulators in the region are getting involved to support the market and steer it through the crisis.

An example of this is Bahrain, where listed companies have been given a three month grace period to fulfill additional requirements. According to Gregory Hughes, MENA IPO Leader at EY, other markets are following suit to mitigate the bleak outlook in the region.

“We have seen that capital markets around the region have granted additional flexibility to public companies during the Covid-19 crisis period. The IPO markets are not likely to quickly rebound in Q2 or Q3 2020, but we are aware of several companies that are preparing for offerings after this period. Investor sentiment will continue to be cautious, given significant volatility in the markets and uncertainty regarding future events including Covid-19 impact, oil pricing, and the US elections,” said Hughes.

The outlook is not all bad, according to Benson, who suggests that new IPOs might emerge just as a response to opportunities thrown up by the crisis. “Potential issuers nevertheless continue to seek new capital, in some cases driven by the current market environment.”