EFG Hermes has managed several successful initial public offerings (IPOs) in the Gulf markets, particularly in Saudi Arabia, the UAE, Kuwait, and Oman. These markets have regained momentum in IPOs and witnessed various mergers and acquisitions deals after experiencing a decline at the beginning of this year due to global economic changes that affected all markets. However, the Gulf markets have maintained their allure, and the largest offerings were implemented during the current year.
Saudi Market
Mohamed Fahmi, EFG Hermes’ Co-Head of Investment Banking, revealed that the company is managing about 4 multi-billion dollar IPOs in the Saudi Stock Exchange (Tadawul) during the current time.
In an interview with Daily News Egypt, Fahmi predicted the completion of several IPOs before the end of this year. These IPOs are distributed across various sectors and include public and private offerings.
He noted that the delay in IPOs on Tadawul is a respite for investors after the large number of offerings implemented by the market in the last period. He explained that the relative slowdown in offerings in Gulf markets, in general, is a correction process that allows for evaluation and review after the huge offerings that took place in the region.
According to Tadawul data, there were about 49 IPOs subscribed and listed on the exchange in the past year.
Fahmi explained that the Saudi Stock Exchange is currently aiming to compete with global markets, after witnessing significant development in the Kingdom over the past period. This has encouraged entrepreneurs to offer their companies in Saudi Arabia later. He also indicated that Tadawul enjoys abundant liquidity, regardless of foreign transactions, and that it reflects a market with different types of investors across various sectors.
The Saudi market had a positive performance in the first quarter of this year. Most sectors, including consumer services, communications, basic materials, and energy, experienced a rise in performance. The general index increased by 1.07%, concluding the quarter at 10,590.1 points, according to market data.
In terms of merger and acquisition activity, EFG Hermes’ Co-Head of Investment Banking stated that 4-5 operations are intended to be implemented during the current year in the Saudi market across various sectors, especially communications and industry.
During the first quarter of this year, the Kingdom of Saudi Arabia ranked second in mergers and acquisitions deals among the region’s markets, according to a recent report by Ernst & Young. The country executed deals worth more than $1.7bn.
Fahmi believes that the Kingdom of Saudi Arabia has attracted investors from around the world, including Egyptians looking for new opportunities in the Saudi market. This is due to new legislative policies and strong economic incentives, as well as the development of infrastructure and technology that has fueled growth.
According to EFG Hermes’ Co-Head of Investment Banking, the Saudi government has worked directly to overcome obstacles to foreign direct investment. This makes it easier for new investors to establish companies, find headquarters for their businesses, and obtain necessary residencies to hire talented staff from different countries. These measures address the challenge of finding the necessary workforce for various businesses in Saudi Arabia.
Fahmi noted that all these developments and radical changes attract investors from all over the world, including Europe, Egypt, and other Gulf countries. He explained that the trend towards Riyadh is no longer limited to Egyptian investors, especially in light of Egyptian companies’ search for additional sources to provide dollar liquidity and take advantage of promising growth opportunities in Saudi Arabia.
He further explained that the government is adopting a trend towards greatly assisting the private sector and increasing its role. It is taking advantage of all its strong financial capabilities in spending, as it has done during the last five years, to bolster the Kingdom’s features. Now, it is offering promising opportunities in all fields, including the entertainment sector.
Fahmi believes that the strength of the Saudi market lies in the availability of multiple financing opportunities at all levels. These include bank financing at reasonable interest rates, despite high-interest rates worldwide, and private and government investment funds that help companies expand significantly, especially emerging ones.
Last July, the Saudi Central Bank “SAMA” raised the main interest rates by 25 basis points, setting the main overnight rate at a range of 5.25% to 5.5%.
In a related context, Fahmi explained that there is no competition between the Saudi market and the rest of the Gulf markets. Each market is not a substitute for the other, and investors always look for markets that align with their plans. EFG Hermes’ Co-Head of Investment Banking went on to explain that the UAE and Saudi Arabia have attracted different types of investors and achieved strong growth rates, making them complement each other.
The Kingdom’s Ministry of Finance expects the Saudi economy to grow by 3.1% in 2023, supported by oil activities. It also forecasts growth of 5.7% in 2024 and 4.5% in 2025.
UAE markets
EFG Hermes is currently working on a group of IPOs, consisting of three or four offerings across the Dubai Financial Market and Abu Dhabi. These offerings include both private and public IPOs, according to Fahmi.
Among them is a significant proposal in the infrastructure sector of a company owned by the UAE government, as well as another proposal in the consumer sector. In addition, the company is working on three mergers and acquisitions deals in the UAE.
The UAE markets have experienced record demand this year, with investors, sovereign funds, and local, regional, and global investment portfolios all showing great interest.
Since the beginning of the year, the total demand for four initial public offerings by companies such as ADNOC Logistics and Services, ADNOC Gas, Presight AI Holding, and Al-Ansari Financial Services has generated about $280bn, with these four offerings collecting revenues of over $3.95bn.
EFG Hermes’ Co-Head of Investment Banking believes that the UAE has made significant strides in its economic development and seeks to attract capital from around the world to continue growing. The UAE’s strong economy provides promising opportunities in all economic sectors, and the country is utilizing all its capabilities to achieve this goal.
The Central Bank of the UAE expects the country’s gross domestic product to grow by 3.9% in 2023. Non-oil output is expected to grow by 4.2% and oil gross product by 3%.
In other news, Fahmi expects an initial offering for a company in the Omani market and another in the Kuwaiti market to be completed before the end of the year. Although these two markets may not have reached the level of Saudi Arabia and the UAE in terms of market size and liquidity, they are witnessing rapid and effective development in changing legislation, providing tax exemptions, and facilitating procedures, which has attracted investors’ attention.
During the first quarter of this year, the merger and acquisition market grew by 42%, including 42 deals worth $2bn in the UAE. Saudi Arabia ranked second with deals worth $1.7bn, followed by Kuwait with approximately $1.3bn worth of deals, according to Ernst & Young.
Egyptian market
Fahmi believes that there is currently uncertainty surrounding Egyptian IPOs. In order for these IPOs to be successful, investors need to see strong financial performance to feel safe and invest in the Egyptian market.
Despite the economic challenges the country is facing, Fahmi emphasizes that Egypt will remain an attractive market for investment.
In February, the Egyptian government announced a government IPO program consisting of 32 companies across 18 economic sectors. The goal is to implement these IPOs by the end of Q1 2024.
Fahmi highlights that sectors that operate based on exporting to introduce foreign currency are among the most important sectors that attract investors.
Additionally, the consumer sector is also important, especially since Egypt has a large consumer market with a population of over 110 million people. This makes Egypt a fertile country for investment in all consumer sectors to meet the needs of the largest segments of the population.
The impact of economic variables on market performance
The Co-Head of Investment Banking at EFG Hermes believes that economic variables, such as the increase in interest rates by central banks and the monetary tightening policy adopted by the US Federal Reserve, have undoubtedly affected IPOs and mergers and acquisitions deals. These changes, along with a state of uncertainty due to the severe impact on markets, have created apprehension and anticipation among investors, leading them to choose reservations as the safest solution at present when it comes to injecting new investments.
He stated that the decline in the number of offerings created a balance in the market. Many companies resorted to private placement processes instead of initial offerings, especially since economic changes affected the companies’ valuation, leading to a decline. This caused them to postpone the idea of a public offering, expecting an improvement in market conditions and a return to normal during the next year.
Despite all the changes, Fahmi expected a positive performance for the region’s markets during the remainder of this year, supported by the recent dissolution of the state of uncertainty. He stressed the need to separate global markets from the Middle East, especially the Gulf region. He noted that, despite all the fluctuations, the Gulf markets were able to achieve growth rates and create liquidity that surpassed the US and European markets.
The Gulf market is working to decouple its growth rates from oil price fluctuations by creating a strong and diversified investment environment. Rather than solely relying on oil, Gulf countries are now diversifying their economies by investing in other sectors such as education and industry. This approach has helped manage investment-related risks. In fact, the risks of investing in Saudi Arabia and the UAE are currently closer to developed markets than to emerging markets.
According to the latest data from Ernst & Young for the first quarter of this year, the success of the Middle East markets, led by the UAE and Saudi Arabia, is due to maintaining the momentum of the achievements made in the past year. The region outperformed many countries with major economies, whose markets have suffered greatly from the consequences of recent crises.
The report states that the region’s markets accounted for 16% of the total proceeds of initial offerings worldwide during the first three months of this year. Companies in the region raised about $3.4bn from 10 offerings, with the largest being the ADNOC Gas offering in the Abu Dhabi market. This was the largest initial public offering in the world since the beginning of this year.
