The capital markets in the Mena region raised $843.9 million in 2011 down 69.3 per cent when compared to $2.8 billion the previous year, according to a new report by Ernst & Young (E&Y).

The year closed with IPO funds worth $226.1 million being raised in the fourth quarter, posting a decline of 83.5 per cent from $1.4 billion raised in the same period in 2010, E&Y stated in its year-end Mena IPO update.

Commenting on the performance of capital markets in 2011, Phil Gandier, Mena head of Transaction Advisory Services, E&Y, said, 'Companies chose other fundraising routes over IPOs in 2011, which was another year of low capital market activity.'

'Low investor interest continued in the Mena region as companies chose Islamic funding such as Sukuk, which saw a record year, as the preferred route for fundraising,' he pointed out.

According to Gandier, investors and issuers in the region remained concerned over the volatility of capital markets and this would likely continue in the next quarter.

'However, the number of announced IPOs continues to grow across the region. The moment economic conditions and investor sentiment improves, we could see a flood of IPOs in the regional bourses,' he noted.

Four IPOs in Q4

United Electronic Company in Saudi Arabia was the largest IPO in the fourth quarter of 2011 with $105.6 million, followed by SMN Power Holding in Oman with $63.9 million, Saudi Enaya Co-operative Insurance Company with $42.7 million and Jet Alu Maroc in Morocco with $13.9 million.

The largest IPO of 2011 in Mena region was UAE’s Eshraq Properties Company ($229.1 million) followed by Saudi Arabia’s Hail Cement Company ($130.5 million) and the United Electronic Company ($105.6 million).

Saudi Arabia led the country standings in 2011, raising $460.5 million through IPOs in all of 2011, followed by the UAE with $271.3 million and Oman with $63.9 million.

Morocco, Tunisia, Jordan and Syria were the only other Mena countries with IPO activity in 2011, said the E&Y report.

In all of 2011, five IPOs each were seen in both the industrial manufacturing and financial sectors, two in the telecommunications sector and one IPO in each of the power and utilities, real estate and retail sectors.

After a promising start in the first two quarters, IPO activity dropped dramatically midway through the year, principally due to investors concerns about sovereign debt issues in Europe and Standard & Poor’s downgrade of US credit rating, the report said.

Year-to-date, the capital raised globally is down by 45 per cent, with $155.8 billion, and number of deals is also down by 20 per cent (1117 IPOs), compared to full year 2010.

Seventy-two percent of global capital was raised in the first 6 months of the year. However, 2011 fundraising activity still exceeded 2009 by more than $40 billion, according to Ernst & Young’s year-end Global IPO update.

Maria Pinelli, global vice chair, Strategic Growth Markets, E&Y, says: “The uncertainty around a resolution to the Eurozone debt crisis and its impact on the global economy has left investors and issuers with a lack of confidence.”

Global IPOs by regions

IPO activity on US exchanges held up relatively well with a modest 16 per cent drop in capital raised, from $43.5 billion via 163 deals in 2010 to $36.4 billion in 114 IPOs.

IPOs on European exchanges accounted for 19 per cent of capital raised and $29.6 billion in value via 251 IPOs. This compares with 13 per cent of total capital raised last year, with 252 IPOs raising  $36.7 billion, the E&Y said in its IPO update.

The year saw the largest PE-backed IPO ever with the $4.3 Billion IPO of the America’s largest hospital chain operator, HCA Holdings in March on the New York Stock Exchange.

Globally, PE-backed IPOs companies exited 168 companies, raising around $37 billion. Seventy companies raised $31.4 billion in the first six months of 2011, putting the industry on pace for its best year on record, it stated.

Despite the challenging environment, pricing generally improved for PE-backed deals compared to 2010, resulting primarily from a number of large deals that took advantage of the wide-open window in the first quarter of the year, it added.

Overall, PE-backed deals have accounted for 24 per cent of the global proceeds raised in 2011, the highest percentage on record, said the report.

Jeff Bunder, global private equity leader at E&Y said: “Moving into 2012, the outlook remains heavily dependent upon stabilization in Europe, accelerated growth in the US and improved investor confidence in Asia.'

'With PE portfolio aging rapidly, sponsors are looking closely for any indication that the IPO window is reopening,' he remarked.

According to Bunder, currently there are over 95 firms registered to go public, which in aggregate could raise more than $20 billion.

“In a new normal, where volatility in public equities markets and in the global economy are constant and expected, PE firms have become more nimble and are prepared for when the IPO window opens next,” he added.

On the 2012 outlook, Maria Pinelli said, 'The key to the IPO market recovery lies in the speedy resolution of the European debt crisis, which is likely to have a stabilizing effect on the global capital market and restore investors’ confidence.'

'Many fast growing companies will continue to look at IPOs as a way of raising capital and remain at the heart of their growth strategies,' he added.-TradeArabia News Service