x Abu Dhabi, UAETuesday 16 January 2018

Glut of private cash to keep Gulf's IPO pipeline dry

What's Down: Drought in IPOs set to continue, as most of the region's privately owned companies can expand without raising funds from share sales.

Al Habtoor Group - which includes a motoring division - last month delayed an IPO. Jeffrey E Biteng / The National
Al Habtoor Group - which includes a motoring division - last month delayed an IPO. Jeffrey E Biteng / The National

The drought in Arabian Gulf initial public offerings will probably continue this year as most of the region's privately owned companies can expand without raising funds from share sales, according to SEI Investments.

"The good companies remain very cash-flow positive in the region," said Jahangir Aka, the head of SEI Investments Middle East, whose parent has US$195 billion in assets under management. "Their ability to expand on their own working capital is very much there."

Al Habtoor Group last month delayed an IPO as trading volume failed to rebound. The company invested about Dh5.9bn in the hospitality industry last year as it launched projects that include the Waldorf Astoria on The Palm Jumeirah.

Uprisings that resulted in the removal of leaders in Tunisia, Egypt and Libya and a deepening debt crisis in Europe slowed regional share sales in the past two years.

Money raised from IPOs in the Middle East and North Africa reached $2bn last year, Ernst & Young International said last month.

In 2008, IPOs valued at more than $80bn were announced, according to data compiled by Bloomberg.

The IPO pipeline has been limited as privately held businesses such as Al Habtoor await a revival in volume on regional stock markets. Between 75 and 90 per cent of Middle Eastern companies are owned and run by families, according to the Dubai-based Tharawat Family Business Forum, an independent network of Arab family businesses.

Average trading volume on the Dubai Financial Market General Index rose 60 per cent to 160 million shares last year, which was still about half the volume traded in 2008. On the Abu Dhabi Securities Exchange General Index, the average volume last year was 7 per cent lower than 2010. Dubai's measure surged 20 per cent over the year, making it the best performer in the GCC.

"It's only a few pennies that have run the market up on low volume," said Mr Aka. "So why should the best-run companies that churn cash on cash go to the capital markets?"

Al Habtoor's reverse over its IPO followed Topaz Energy & Marine, a Dubai-based oil and gas services company, which opted out of a share sale in London in 2011 because of an "uncertain investment climate for new issues".

Axiom, a Dubai-based phone retailer, cancelled plans to raise about $100 million in late 2010 because of "widespread concerns about market conditions and liquidity".

* Bloomberg News