As governments in the region continue to push for privatisation, the GCC is set to see continued strong performance in initial public offerings (IPOs) in 2024. The total number of IPOs in the region decreased marginally from 48 in 2022 to 46 in 2023 – still well above the 20 recorded in 2021. Proceeds from GCC issuers totalled $10.8bn in 2023, compared to almost $23bn the year before. The growing number of successful IPOs in the region has resulted in greater interest from investors. Following record activity in the UAE and Saudi Arabia in 2022, in 2023 the two Gulf countries ranked fourth and eighth, respectively, in terms of full-year IPO proceeds in global markets. Much of the activity observed in recent years was the result of various government initiatives, such as the UAE’s national blueprint, We the UAE 2031, and Saudi Arabia’s Vision 2030.
Continued Momentum
IPOs remained buoyant in the GCC throughout 2022 despite some volatility in secondary markets, such as the MSCI GCC Countries Combined Index. The index saw a modest increase of 1.2% in the first half of 2022, followed by a considerable decrease of 7.5% in the second half of the year. The index’s performance was affected by oil prices, which rose by 55.1% in the first half of 2022 only to drop by 30.9% in the second half of the year. In 2023 the MSCI GCC Countries Combined Index saw 6.8% annual growth.
The GCC has yet to experience the IPO downturn that has affected many markets around the world. Global financial volatility has resulted in a drop in IPO activity outside the region, which has helped GCC companies sell equity at high valuations. In 2022 capital markets around the globe struggled due to various factors, including the impact of the Covid-19 pandemic, inflationary pressures, geopolitical tension and policy decisions by central banks to tighten monetary policy. As a result, the frequency of equity issuances declined. Some countries even saw a halt in issuances, making 2022 a difficult year for IPOs. Compared to 2021, global IPO proceeds fell by over 70%, with IPO earnings in US markets down by 90%, and markets in the UK and Europe seeing a significant downturn. In 2022 IPOs generated $173bn in proceeds through 1154 IPOs, compared to $618bn via 2682 offerings in 2021. That figure fell further to $121bn from 1429 offerings in 2023, the lowest figure since 2019.
Even as volatility fuelled a downturn in other regions, the GCC has seen strong growth. This resilience was largely due to the confidence shown by regional issuers in the business fundamentals of their companies and their effective communication with the market, which helped to generate a high level of investor appetite. Additionally, the strong performance of certain segments in the region – such as technology and renewable energy – contributed to durability in the face of global challenges.
Regional Growth
GCC countries are a prime target for investors seeking to profit from high oil prices, among other factors. Qatar, Kuwait, Saudi Arabia and the UAE collectively accounted for over 7% of the total MSCI Emerging Markets Index as of December 2022, an improvement on the GCC-wide share of 1.2% in 2017, according to a report from financial services firm EFG Hermes. The region’s weight is expected to experience substantial growth in the coming years due to its efforts to invest heavily in infrastructure, promote economic diversification and open up to foreign investment, especially as the GCC’s largest markets make regulatory changes to meet international standards and incentivise private companies to list on regional stock exchanges.
Despite 2023 ranking as the worst year since 2009 for first-time share sales globally, over half of the IPOs in the GCC recorded positive returns compared to their listing price at the end of the year, a development that has drawn increased interest from foreign investors seeking access to GCC capital markets. For example, between 2017 and 2023 the number of foreign investors qualified to trade in Saudi Arabia’s capital markets grew from 50 to 3700.
In 2023 activity was driven by both privatisation IPOs as well as the listing of family-owned businesses, which constitute a significant portion of the private sector in GCC countries. Additionally, economic diversification initiatives have had a clear impact on GCC capital markets. While energy, utilities and resource-sector companies represented 50% of the GCC’s IPO proceeds in 2023, with a value of $5.2bn, consumer markets, health industries, and technology, media and telecommunications each represented more than $1bn of IPO proceeds.
In 2023 Saudi Arabia maintained its position as the leader in IPO issuance among countries in the GCC region, with 35 out of 46 IPOs in the region debuting on Tadawul, the Kingdom’s stock exchange. The UAE, meanwhile, was top in terms of IPO earnings, receiving nearly 56.3% of total proceeds, or around $6.1bn, from its eight listings in 2023.
Successful Listings
As macroeconomic headwinds and geopolitical concerns dampened activity elsewhere, a number of large IPOs defined activity in GCC capital markets in 2023, with five deals contributing 58% of the region’s total IPO proceeds. The largest listing in the region was the $2.5bn IPO of ADNOC Gas in March, a deal that was covered 50 times and constituted around 25% of total GCC IPO proceeds for 2023. Saudi oil and gas company ADES raised $1.2bn from its September IPO on Tadawul, and Abu Dhabi-based health care firm PureHealth raised $985m with its IPO on the Abu Dhabi Securities Exchange (ADX) in December. Meanwhile, the $771m IPO of logistics firm ADNOC L&S on ADX and the $728m IPO of energy firm OQ Gas Networks on the Muscat Stock Exchange (MSE) were the fourthand fifth-largest listings of that year, respectively.
Qatar and Oman both saw a significant uptick in activity in 2023, with the latter gaining increased attention from international banks as the privatisation of government assets gains momentum. The listing of technology firm MEEZA on the Qatar Exchange in June raised $193m, whereas the MSE listed two IPOs – including that of OQ Gas Networks, the country’s largest offering in nearly two decades – at a total valuation of $973m.
Prospects
As the macroeconomic landscape stabilises, there is cautious optimism for a global IPO recovery in 2024. In the first quarter of the year, global IPO volumes fell 7% year-on-year while proceeds rose 7%, with 287 deals raising $23.7bn, according to EY figures. While activity has slowed in the Asia-Pacific region, a stable North American market and growth in the Middle East and Europe reflect the cautious optimism from investors.
A significant number of newly listed companies in key IPO markets saw their stock prices surpass their initial offer prices in the first quarter of 2024, especially in Japan, the Middle East and Europe. As of January 2024 nine of the top 10 GCC IPOs were recording share prices above their offer prices, presenting an attractive opportunity given the global interest rate environment. Notably, ADNOC L&S saw proceeds of 102%, while Saudi Arabia’s Jamjoom Pharmaceuticals and SAL Saudi Logistics Services saw proceeds of 93% and 82%, respectively.
Despite the potential risks posed by interest rate hikes, geopolitics, and the volatility in secondary stock markets and oil prices, 2023 saw strong IPO activity in the GCC. In the first quarter of 2023 alone companies raised $3.5bn through IPOs, and the region continues to attract strong interest from international investors driven by high oil prices – a trend that could continue into 2024. As of March 2024 the GCC IPO pipeline looked promising, with an estimated 29 companies involved in either announced or possible listings.
The pipeline is likely to be strengthened in the coming years by efforts to privatise government-owned assets as part of the GCC’s broader economic diversification and private sector development plans. For example, Oman is aiming to privatise more than 30 government-owned firms over 2021-25. The Oman Investment Authority, the sultanate’s sovereign wealth fund, plans to exit eight investments, raising $1.3bn in the process. In the UAE, the $1.4bn Abu Dhabi IPO Fund was launched in 2022 to act as a catalyst for strengthening the ADX’s position as a leading stock market.
The GCC is experiencing a favourable climate for IPO issuance, and all indications point to this trend continuing in the near future. As of April 2024 GCC markets were trading at a premium to their emerging market peers. The MSCI GCC Countries Combined Index’s price-to-earnings ratio was 13.77 in 2023, compared to the MSCI Emerging Market Index’s ratio of 11.96, underscoring the confidence that investors have shown in the region.
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