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Arabian strength: Middle East IPOs deliver in the aftermarket, pushing momentum beyond 2022

The Middle Eastern IPO boom is set to continue into 2023, as sources say that if deals keep performing, investors will keep coming.

Undoubtedly the bright spot in a dark 2022 ECM market, the Middle East has evolved from a land of promise to a booming IPO hub that is front of mind for both bankers and investors, with new local markets likely joining the party.

A privatisation wave led by countries in the Gulf Cooperation Council (GCC) has been the main driving force of activity, with governments rapidly selling stakes to expand their domestic equity capital markets and bolster local exchanges.

There has been USD 15.7bn of IPO issuance in the GCC this year across 37 transactions, according to Dealogic data, a historic tally for mid-October, although the end-of-year total is still unlikely to be a record given the landmark USD 29.4bn IPO of Saudi Aramco [TADAWULl:2222] in December 2019, still the largest global IPO ever.

Among landmark 2022 deals, there was the USD 6bn IPO of DEWA [ADX:DEWA] in April, which alongside privately-owned listings has provided depth and breath to the region’s equity markets.

Most importantly for investors, as well as bankers and potential new issuers, is that IPOs priced this year have had a stellar performance, with GCC IPOs producing a weighted average return of 24.4% year-to-date.

The alpha generated beats the local MSCI GCC Countries Combined Index and vastly outperforms MSCI’s Emerging Markets Index, Europe and Middle East Index and All Cap World Index, all of which are down heavily year-to-date.

International investors would continue to flock to the region’s capital markets, as long as they keep performing, one ECM banker said. The typical allocation strategy in the region, which favours local equity investors over internationals, means buysiders from abroad will need to keep returning for more shares in upcoming IPOs to get greater alpha.

The GCC is expected to have a strong end to the year with the IPOs of Saudi Aramco refinery JV Luberef, Emirati cooling systems company Empower and a dual Saudi/Abu Dhabi listing of Kuwaiti food operator Americana in the pipeline, this news service has reported.

The momentum will continue in 1Q23, with the blockbuster IPO of Emirates Global Aluminium, this news service reportedThere also remains talk of a mega listing for Aramco’s trading unit as previously reported by the ECM Pulse.

“We expect a lot more Middle Eastern IPO issuance next year,” said a banker close to several live deals in the 2023 pipe. “A strong oil price looks sustainable and there are plenty of local investors and institutions familiar with these assets.”

Another banker said that the region would continue to play an important role in pitching EMEA ECM desks, particularly because IPO activity in Europe is expected to be sporadic at least until the middle of next year when there may be more clarity on the direction of interest rates.

Privatisation wave to broaden

While the major GCC ECM deals for 2023 will likely come from Saudi and UAE issuers, there is talk of deal nationalities broadening next year.

One ECM lawyer working in the region said there is a strong desire among other GCC countries, particularly Oman, to join Saudi and the UAE in the IPO privatisation wave.

Another ECM banker said there is increasing market talk beyond the GCC, adding he was particularly focused on Egypt, which has publicly committed to a seismic privatisation plan of various state-owned industries.

According to a report in Le Monde in May, Egypt wants the private sector’s investment in its economy to increase to 65% from 30% by 2025.

Egypt plans to sell 10 state-owned companies and two owned by the army, the report stated. The operation also involved the creation of two large holding companies - one for seven of Egypt’s ports as well as some of its most prominent hotels, the report added.

A fifth banker though was more dismissive of Egypt and Oman deals. The former was likely to involve smaller companies coming to market, he said, while Oman may have issues with its debt pile.

One of the biggest names being talked about in the region is Saudi Arabia’s futuristic NEOM city project, which will be part-funded through the listing of an investment fund on the Tadawul, he said. However, the banker cautioned “I’ll believe it when I see it.”

This news service reported in August that advisors had already begun positioning themselves for a role on what could be the most substantial new listing in the region since Aramco.

Regardless of how futuristic projects may be, there are plenty more IPO riches to be found in Middle East.