Activity in initial public offerings (IPOs) across the Mena region declined in the first quarter (Q1) of 2015 after an active Q4 2014, with only two IPOs collectively raising a total capital of $255.7 million, said an industry expert.

Capital raised by Mena firms through IPOs decreased by 80 per cent and the number of IPOs decreased by 60 per cent in Q1 2015, compared with Q1 2014.

Similarly, capital raised by Mena firms through IPOs decreased by 97 per cent and the number of IPOs decreased by 75 per cent in Q1 2015, compared with Q4 2014, noted Phil Gandier, Mena Transaction Advisory Services leader, EY, a professional services firm.

“The Mena IPO market is expected to be cautious given the recent volatility levels in oil prices and the Mena capital markets. Regional companies are expected to wait and watch the markets closely for the oil price to settle down before launching new IPOs in Q2 2015 and Q3 2015,” said Gandier.

“While there may be some adjustments to government spending plans, the regional markets are expected to stabilize over the rest of the year, with the fundamentals in place for a sustained period of steady IPO activity.”

Two IPOs in Egypt

Both of the IPOs that closed in Q1 2015 were companies based in Egypt, with Orascom Construction opting for a dual listing on the Egyptian Stock Exchange (SE) and Nasdaq Dubai.

The growing investor confidence was reflected in the IPO market with both Orascom Construction and Orascom Hotels and Development being oversubscribed by 5.1 times and 3.8 times respectively, and thus underlining recovering market sentiments.

Mayur Pau, Mena IPO leader, EY, said: “The ongoing economic recovery and increasing stability in Egypt have encouraged capital market activity. Egypt was the only market to see IPO activity in Q1 2015.”

“This is supported by government initiatives to stimulate the economy, including a cut in energy subsidies last year, an improved tax regime and new infrastructure projects such as the Suez Canal development project. Improving relationships with other countries in the region have resulted in several Gulf countries collectively pledging a total of $12 billion for the economic recovery and growth plans of the country. These factors, combined with more simplified listing procedures and amended laws, are likely to drive an increase in capital market activity on the Egyptian SE,” he added.

Growth in foreign investments

Regional markets, particularly Saudi and Egypt, are encouraging increased capital inflow from foreign investors by proposing and implementing further regulatory reforms. The second quarter of 2015 is expected to see the opening of the Saudi stock exchange to foreign direct investments and this is likely to positively impact the market.

“The Mena IPO market is likely to be active going forward with oil prices and capital markets in the Gulf region starting to show signs of stabilization in Q1 2015, following a period of volatility, and the potential for increased foreign direct investment in Mena driven by regulatory reform, particularly in Saudi Arabia and Egypt,” said Gandier.

“However, such IPO activity is subject to regional uncertainties which may have an impact  on oil prices and the Mena capital markets going forward,” he added. – TradeArabia News Service