The GCC saw a rise in initial public offerings (IPOs) in 2022 despite volatility in secondary markets, surpassing the previous year’s record high. The total number of IPOs in the region increased from 20 in 2021 to 48 in 2022, marking a 140% rise, and proceeds from GCC issuers increased by 211% from $7.5bn to almost $23bn over the same period.
The growing number of successful IPOs in the region has resulted in greater interest from investors. Following an uptick in activity in the UAE and Saudi Arabia, in 2022 the two countries ranked third and sixth, respectively, in terms of full-year IPO proceeds in global markets. Much of the activity observed that year was the result of government initiatives, such as Vision 2030 in Saudi Arabia and the UAE’s national blueprint, We the UAE 2031. Although the first nine months of 2023 saw a decline in the value of IPOs in the region amid difficult global conditions, the UAE emerged as the clear market leader in terms of proceeds from new offerings.
Success Amid Turbulence
Despite fluctuations in secondary markets, such as the MSCI GCC Countries Combined Index, IPO activity remained robust in the GCC in 2022.The index saw a modest increase of 1.2% in the first half of the year, followed by a decrease of 7.5% in the second half. 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. The 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 generate a high level of investor appetite. Additionally, the strong performance of certain sectors in the region – such as technology and renewable energy – contributed to durability in the face of challenging global conditions.
The GCC has yet to experience the IPO volume downturn that has affected many markets around the world, with the first nine months of 2023 seeing 29 IPOs in the region, compared to 30 during the corresponding period the previous year. 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 2022-23 capital markets around the globe struggled due to various factors, including the impact of the Covid-19 pandemic, inflationary pressures, geopolitical tensions and tighter monetary policies. As a result, the frequency of equity issuance 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 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.
Regional Growth
GCC countries are a prime target for investors seeking to profit from high oil prices and other factors. The UAE, Kuwait, Qatar and Saudi Arabia collectively accounted for over 7% of the MSCI Emerging Markets Index as of December 2022, a marked 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 significant growth in the coming years due to its efforts to invest heavily in infrastructure, promote economic diversification and open up to foreign investment.
In 2022 Saudi Arabia remained the leader in IPO issuance in the GCC region with 38 IPOs. This included 19 that debuted on the Main Market and 19 on the Nomu – Parallel Market, an alternative market with less strict listing requirements. This demonstrated that despite global headwinds, investors were still being drawn to the country’s market.
The UAE was top in terms of IPO earnings, receiving nearly 59.7% of issuance proceeds, or around $14bn, from its 11 issuances in 2022. The UAE was home to the two largest IPOs in the region that year, with the Dubai Electricity and Water Authority (DEWA) raising $6.1bn from its listing on the Dubai Financial Market in April and polyolefins manufacturer Borouge raising $2bn on the Abu Dhabi Securities Exchange (ADX) in May, highlighting the attractiveness of such offerings. In addition, the joint Abu Dhabi-Riyadh listing of Americana, a MENA food franchisee, raised $1.8bn in late 2022. The company had previously been listed on Boursa Kuwait but was privatised in 2017 for $3.5bn. The organisation’s new owners valued the company at $6.2bn. The IPO was the first dual listing on the Saudi and Abu Dhabi exchanges, and it highlighted the progress that GCC markets have made, including in terms of inter-exchange cooperation. This progress showed that the GCC has the potential to become a major player in international capital markets.
In 2023 the UAE accounted for 58% of all GCC IPO proceeds in the first nine months of the year. The listing of ADNOC Gas – a division of the Abu Dhabi National Oil Company – on the ADX in early March 2023 raised $2.5bn alone, making it the largest listing ever in Abu Dhabi and the most valuable global listing in the first quarter of the year. Abu Dhabi and Dubai are the favoured listing destinations for the UAE’s other emirates, including Sharjah, which is home to numerous major companies operating in various industries. Abu Dhabi-listed Sharjah Islamic Bank (SIB), for example, was the UAE’s 30th-largest company by market capitalisation in December 2023, while Abu Dhabi-listed Dana Gas – the Sharjah-based regional gas player – was the UAE’s 33rd-largest company by market capitalisation that same month. Beyond being listed in Abu Dhabi, in September 2023 SIB announced a partnership with the ADX to enhance access to IPOs by simplifying the process for creating a national investor number for the bank’s clients, enabling them to subscribe to IPOs through ADX’s e-IPO service.
Successful Listings
Dubai’s IPO pipeline was notably robust in 2022. The March 2022 listing of DEWA was the largest IPO in the GCC that year, raising $6.1bn at a time when global investors were looking for profitable opportunities amid general uncertainty. The offering size increased substantially, with 8.5bn shares sold at Dh2.48 ($6.45) each, up from an initial 3.3bn shares. As of early 2023 DEWA was the largest company by market capitalisation on the Dubai exchange. DEWA drew the interest of investors due to its consistent cash flow and potential for dividends. These factors were also evident in other major Dubai listings in 2022, when Salik, Empower and TECOM Group – all of which are majority government-owned entities – raised a collective $2.2bn between them.
Several important consumer-focused organisations were also listed in 2022. For example, Jeddah-based Nahdi Medical Company raised $1.4bn through an IPO in March 2022, while in October 2022 health care operator Burjeel Holdings listed on the Abu Dhabi market, raising $300m in the process. In addition, Taaleem, an educational company based in Dubai, raised $205m in a November 2022 listing on the emirate’s exchange, highlighting the wider UAE’s economic diversity. These listings demonstrate that smaller organisations that operate using innovative business models are increasingly sharing space in capital markets with larger, government-related companies.
Prospects
Despite the potential risks posed by interest rate hikes, geopolitics, and the volatility in secondary stock markets and oil prices, 2022 saw strong IPO activity, and this trend continued into 2023. As of May 2023 the GCC IPO pipeline looked promising, with an estimated 20 to 40 companies involved in both announced and possible IPO issuance. 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.
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.
The GCC is experiencing a favourable climate for IPO issuance, and all indications point to this trend continuing in the near future. As of February 2023 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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