Thursday, February 13, 2014

Saudi Arabia’s IPO market set to pick up

Activity in Saudi Arabia’s capital markets is expected to increase next year, as companies look to broaden their corporate base and support expansion programmes by
going public or seeking funds from bond markets, Global Arab Network reports according to OBG.
This would follow on what has been a relatively slow year in 2013, with only four initial public offerings (IPOs) so far this year, all before May. The third quarter of the year was the first three-month term since 2011 that no new listings were added to the Tadawul’s boards. Analysts attributed some of this inactivity to the traditional slowdown in the summer months, combined with the holy month of Ramadan.
IPO activity picking up
According to HSBC’s Fahad Al Saif, there will be a sharp upturn in the number of IPOs next year, in addition to more issuances of sukuks (Islamic bonds). One of the themes of 2014 will be acquisition financing, as there is set to be an increase in mergers and buyouts, said Al Saif, who is in charge of HSBC’s capital markets and corporate finance operations in Saudi Arabia. Another feature of the new year will be companies seeking additional capital to fund new projects and infrastructure development, he said.
“Sectors such as transport need financing,” Al Saif told Bloomberg in late October. “Port companies, railways and airlines are looking to do this either through banks or sukuks. With a number of companies considering primary or secondary offerings, we are optimistic that there will be a healthy amount of activity next year.”
The impending appearance on the Tadawul’s boards of two more local firms, the Riyadh-based building materials firm Bawan, and Astra Food, by the end of this year underscores the upward trend. In mid-November, financial sector regulator the Capital Markets Authority (CMA) issued statements saying it had sanctioned Bawan’s offering 15m shares, 30% of its total, to the public, while Astra Foods had also been given approval to offer 11m shares, 40% of the company’s holdings. Both sales will be completed in December, the CMA said.
Health services provider, the Dr Suleiman Al Habib Medical Group (HMG), one of the Kingdom’s largest private health care operators, with facilities in its home market as well as in Bahrain and the UAE, is also going public. On November 5, it appointed Saudi Fransi Capital to act as its financial advisor, lead manager, book runner and underwriter.
Another health care firm, Almana General Hospitals (AGH), is also reported to be firming up plans for an IPO, which analysts expect to take place in late 2014, similar timing to the HMG offering.
Meanwhile, utility ACWA Power recently flagged its intentions to open an IPO some time next year, a move that would help the company push ahead with plans to invest more than $3bn in solar energy facilities over the coming five years. In an interview with Reuters at the end of October, ACWA chief executive Paddy Padmanathan said that while initial steps had been taken, the exact timing had yet to be confirmed.
“We have completed studies for the IPO and we will start now to choose advisers, but I can’t say when we would launch it,” Padmanathan said. “Initially we would launch it in the Saudi market, but we could be listed in other countries.”
Debt markets are also heating up, with some $12bn raised this year through the sale of sukuks, as of November. According to Al Saif, this figure will rise to more than $14.5bn by year’s end, with another $2.7bn anticipated through Islamic bond issuances in the first quarter of 2014.
This forecast was in line with a recent report from global consultancy PwC, which said there had been strong demand for both Saudi sovereign bonds and sukuk in the third quarter, with demand driving further issuances into the coming months.
“Debt continues to be one of the main methods of raising public securities in the region as governments and companies continue to issue bonds and sukuk thanks to favourable market conditions and strong demand by investors,” Steve Drake, head of PwC’s Capital Markets Group in the Middle East region, said in a statement issued on October 30. “We see no reason for this trend declining given the continued demand for capital the region is experiencing.” (OBG)

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