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Economic News

22 Jul 2010
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When the organisers of a share issue hire a sports stadium and a small army of supervisors to ring fence overseas applicants, clearly another record-breaking Gulf event is on the way.

Sunday's opening in Qatar of the initial public offering (IPO) for Al Rayyan Bank is just such an occasion, with market watchers predicting that it will turn out the biggest ever such event.

The Qatar National Bank (QNB) is in charge of the IPO, and has hired the Qatar Sports Club just for applicants from other Gulf Cooperation Council (GCC) area citizens taking part. Qatari nationals will be served by QNB branches and other participating banks.

QNB will be receiving applications on 12-hour shifts daily between the opening of the offer on January 15 and its close on January 29. Some 350 trained staff and employees will also be on hand to deal with applicants' enquiries, along with security and medical services.

Clearly then, to say that QNB is expecting a certain amount of interest in the IPO would be a substantial understatement.

"We are expecting a turn-out of thousands of prospective shareholders between the Qataris and GCC for the IPO over this 15-day period," Ali Shareef al-Emadi, acting chief executive of QNB, told reporters. "It is important that such numbers are carefully managed to ensure [a] smooth process and comfort for the subscribers."

This concern comes after the last IPO in the UAE, which itself set a new record, the Dana Gas offering. This was oversubscribed 139 times. While astonishing enough, this was eclipsed in terms of number of applicants by the IPO for the UAE's Aaber Petroleum last April, which was 796 times oversubscribed.

Al Rayyan Bank, an Islamic commercial investment outfit, is - like many Gulf IPOs - a start up company. It will not be in operation for at least another eight months, most analysts say. The bank will have a capital of QR7.5bn ($2.07bn), with 55% of its equity (QR4.13bn) on offer in this public subscription.

The IPO will offer 413m shares to the public at QR10 per share, with a nationality clause ensuring that 80% of the shares - 330m - will go to Qatari nationals and the rest to GCC citizens. The bank's founders retain 337m shares.

There is a minimum subscription of 500 shares (QR5000) and a maximum of 50,000 shares (QR500,000). Subscribers will only be asked to pay 50% of the value on application, with the remaining 50% due over the next four years.

For some time, the gravitational pull of this IPO has been visible on Gulf stock exchanges, causing other bourses to wobble.

The Doha Securities Market fell 4% in the first week of 2006 thanks largely to investors selling other shares in order to fund their IPO purchases, AME Info reported on January 16.

The recent series of major oversubscriptions in the Gulf has come on the back of massive liquidity in the region, running on from high oil prices and a persistent bull market. At the same time, the relative shallowness of most Gulf exchanges has meant that much of this liquidity has few options to choose from, channelling interest into IPOs.

Yet, as some analysts point out, this is not without its dangers. One observed after the Dana Gas IPO was that although the huge demand at first pushed stock prices higher, there was then a period of selling, leaving some investors worse off.

At the same time, large amounts of borrowing tend to occur in order to fund applications for shares. Spotting potential trouble there, the Qatar Central Bank has this time decided that investors may borrow only up to 70% of their investment. The impact of a future fall in share prices could therefore be more limited.

One other question mark raised by the IPO is how well Doha itself might cope with the scale of the applications.

With 20% of the shares to be issued to GCC citizens - and no system for electronic applications - these people will have to travel to Doha to take part, or send a representative with the applicant's passport.

Potentially, this could be good for Doha's hotel business - an unexpected spin off from an IPO. Yet it could also cause some discomfort, if the local tourist infrastructure gets swamped.

Yet despite these concerns, few expect the IPO to be anything other than a great success. All the ingredients that made other offerings in the Gulf recently so popular are still in place. A sports stadium might therefore be an appropriate place for some cheering investors.

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