The Middle East and North Africa (Mena) region’s initial public offering (IPO) value hit $1.7 billion in the third quarter of the year, a ten-fold increase from $150.7 million raised in the same period last year, according to a recent EY update.

EY’s Mena Q3 2014 IPO Update pointed out that the activity during the period was limited to three IPOS - Emaar Mall Group (EMG) listed on the Dubai Financial Market (DFM) in UAE, two IPOs of Zain Bahrain and Delice Holding, Tunisia.

Phil Gandier, Mena head of Transaction Advisory Services, EY, said: “The third quarter witnessed the largest IPO of 2014 to date; Emaar Malls Group raised $1.6 billion, potentially signalling a shift in the regional business perception of local markets.

“The IPO, which closed in September this year, was heavily oversubscribed (over 30 times), indicating growing investor confidence and appetite to deploy capital which has been waiting on the side-lines.”

EMG was one of the first companies to capitalise on planned regulatory reforms in the UAE by being exempted from having to float 55 per cent of existing shares, ahead of the new regulations being implemented. The group floated close to 15 per cent of its shares on the DFM to raise $1.6 billion, said the report.

Mayur Pau, Mena IPO leader, EY, said: “The third quarter historically has the lowest activity of the year and this trend has continued in 2014. Q3 2014 has been relatively slow in terms of IPO volume compared with other quarters due to the quiet summer period. However, the strong fundamentals of the Mena region and improved valuations are likely to drive IPO volume, with a significant backlog expected to come to market over the next quarters as companies wait to go public at the right time.”

The Mena capital markets have been introducing new reforms and relaxing their rules in an attempt to encourage local companies to consider domestic IPOs, said the report.

“The more relaxed regulations are increasing the attractiveness of local markets. Regional regulators are continuing to focus more on measures to increase IPOs, thus leading to a much-needed deepening of the equity market in the region and improved sentiment from global investors,” said Pau.

“Mena regional authorities have also been streamlining IPO rules to encourage some of the region’s family business to list as a way of making business more transparent,” he said.

A number of funds based in Mena that specialise in IPOs have made impressive returns in recent times. Since valuations are back to an attractive exit level, most of the investments are gradually being restructured and the pressure for monetising them is growing which has led to a healthy IPO pipeline, said the report.

IPO funds represent the most efficient option for institutional investors that would not have a significant allocation to a public offering due to either high demand or foreign ownership limits, it said.

“Mena IPO activity is expected to surge in 2015, particularly in the GCC countries, with market valuations returning to somewhere near pre-financial crisis levels. Companies in the financial services and real estate sectors continue to dominate the pipeline. With a growing regional economy and regulatory initiatives being implemented, investor confidence is expected to rise and bring liquidity to the market,” said Gandier.

“Government spending on infrastructure and diversification of oil-based economies have created more opportunities in the private sector. These continued developments are expected to encourage companies to raise capital from the market,” he added. - TradeArabia News Service