Gulf states set for IPO boom again
Dubai, June 4, 2014
By Andrew Torchia
Initial public offers of equity in Gulf countries are set to boom, helped by lighter regulation and legal reforms as governments seek to diversify their oil-dependent economies, according to one of the region's top IPO lawyers.
An exemption from Dubai IPO rules granted by regulators to real estate giant Emaar Properties, which will permit an offer worth up to $2.45 billion, is a sign of the times, said Husam Hourani, managing partner at Al Tamimi & Company.
"Emaar won't be the last company to get an exemption," Hourani said in an interview at the firm's Dubai headquarters.
The total value of IPOs in the six Gulf Cooperation Council (GCC) countries peaked at a record $12 billion in 2007 and then plunged as markets froze up. Last year, GCC IPOs totalled roughly $2 billion.
IPO activity has recovered more slowly in the GCC than it has in much of the world. Some Gulf firms have preferred to go to foreign markets such as London, seeking greater liquidity and less restrictive rules.
But Hourani said GCC regulators and banks were now making it a priority to encourage IPOs, to diversify their oil-dependent economies, subject companies to more market discipline and spread wealth more widely among their populations.
"This is a trend which has several factors behind it and is building up momentum," he said, predicting the next peak in IPOs would match or even exceed 2007.
Al Tamimi, founded 25 years ago by UAE national Essam Al Tamimi, is one of the largest Middle East law firms that has stayed independent of the global legal giants. It has developed its financial practice partly through an emphasis on IPOs.
Hourani said peak activity in the UAE would not come before 2015, because companies generally needed to disclose financial statements for the past two years during IPOs, and corporate earnings had only really started recovering in 2013.
But the corporate mood has shifted, he said. Al Tamimi is currently working on seven proposed IPOs in the UAE and understands from authorities that a total of at least 20 are in the pipeline. The speed at which they take place will depend on the regulator.
Earlier this year, Dubai saw its first two IPOs since 2009, a $175 million offer by Emirates REIT and a $75 million offer by retail and restaurant firm Marka; both were heavily subscribed.
IPOs are reviving partly because of a big rebound of share prices; Dubai's main index has more than tripled since the end of 2012. But regulation is a key factor.
Emaar said last month it would list up to 25 percent of its shopping malls business on the Dubai Financial Market, after obtaining an exemption from a rule requiring minimum free floats of 55 percent of a company.
Marka's IPO also benefited from benign regulators; it is a "greenfield" company which has only just been formed and has no financial track record. Greenfield IPOs were popular at the height of the UAE's market boom a decade ago but then fell out of favour with regulators as financial storm clouds gathered.
Hourani said he did not expect greenfield IPOs to again become the norm, and that few if any more were likely. The new UAE Companies Law, awaiting final approval by authorities and expected to take effect by end-2013, would be more significant.
Among other things, it will reduce the minimum free float in IPOs on the UAE's main markets to 30 percent from 55 percent, and permit company owners to conduct IPOs by selling existing shares rather than issuing new ones if they wish.
It will also allow IPO prices to be determined by book building - obtaining indicative bids from fund managers - rather than through a fixed-price evaluation method.
In Saudi Arabia, the Arab world's biggest bourse, Al Tamimi is working on two proposed IPOs and is aware of a total of four in the pipeline. One under preparation is a blockbuster deal by National Commercial Bank, the largest bank.
Hourani said authorities had been streamlining IPO rules, partly to encourage some of the country's many family-controlled firms to list as a way of making business more transparent.
Saudi Arabia has been preparing for several years to open its stock market to direct foreign investment, but has not taken the plunge. Hourani said time was needed to persuade a wide range of entrenched interests, including those in the financial industry, of the benefits of opening up to more competition.
However, a consensus on the benefits has been building, and the opening of the market now appears imminent, he said. "It seems before the end of the third quarter this year."
Al Tamimi, which has 280 lawyers and offices in seven countries, most of them in the Gulf, saw its revenues jump 17 percent in 2013 and 20 percent from a year earlier in the first quarter of this year.
Its next expansion will be establishing an office in Egypt, reviving a plan that was suspended because of the turmoil that followed the country's 2011 revolution, Hourani said. Iran is a possibility further down the line. - Reuters