After a flurry of IPOs in Q1 2021, IPO activity has pared down in Q2 2021 across the GCC region. There was equity capital markets activity although none in the form of traditional IPOs.
The debt market, on the other hand, remained buoyant during Q2 2021. The continued low interest rates and weak oil prices are likely catalysts for this quarter’s active debt market. There were multiple sovereign and corporate issuances. The majority of bonds and sukuks issued during the quarter were from the UAE.
2021 started promisingly with 5 IPOs across the region after a difficult 2020 which had been hit hard by the impact of COVID-19. This quarter saw no IPOs but there were still some notable equity transactions.
Nasdaq Dubai welcomed the secondary listing of The Bitcoin Fund in June, which was primarily listed on the Toronto Stock Exchange in January this year. The fund offers investors an indirect exposure to Bitcoins, potentially reflecting the region’s interest in alternative investments. This dual listed fund is the first indexed cryptocurrency digital asset-based fund in the Middle East and North Africa.
Alpha Dhabi Holding PJSC publicly listed on the Abu Dhabi stock exchange by way of a direct listing in June 2021. The total paid in capital of the company was approximately USD 2.7 billion. The listing led Alpha Dhabi’s parent company, International Holding Company (IHC), to become the largest company by market capitalization on the Abu Dhabi stock exchange. By the close of its first day of trading, the addition of Alpha Dhabi brought the market capitalization of all the shares listed on the ADX to over AED 1 trillion for the first time.
Notwithstanding the reduced IPO activity this quarter, there remains a market consensus that there will be further IPOs across the region this year as we move into a post COVID-19 economy. This potentially is further assisted by the Kingdom of Bahrain’s adoption of the Global Industry Classification Standard from 11 July 2021 to improve effectiveness and transparency in its capital markets, the 2020 amendment to UAE company law, the recent launch of the Nasdaq Dubai Growth Market designed to provide access to the capital markets for small and medium enterprises (SMEs) and a number of governments in the region looking to privatise government assets.
Although Tadawul has been unusually inactive in Q2 2021, its IPO pipeline for the rest of the year looks promising. Saudi Telecom Company has been given approval at the end of June to list 24 million shares of its subsidiary Arabian Internet and Communications Services Company. Another anticipated IPO is that of Arabian Contracting Services Co. The company has received approval to offer 15 million shares, amounting to 30% of its share capital.
The region’s debt market was the highlight this quarter with multiple high value issuances led by the UAE markets, even though the UAE government did not issue any debt instruments this quarter, in contrast to previous quarters.
Mamoura Diversified Global Holding (MDGH) PJSC listed bonds with a total value of USD 2.8 billion on the Abu Dhabi stock exchange. This listing makes MDGH the biggest corporate issuer this quarter across the entire region.
Nasdaq Dubai is the region’s most prominent exchange for sustainability and ESG issuances, playing host to multiple green sukuks issuances this quarter by the Indonesian government which raised USD 3 billion. Both DFM and Nasdaq Dubai have issued sustainable issuance guides with the aim of encouraging ESG and sustainable investments in the UAE and across the wider region.
Several other governments in the region also issued debt to enhance their liquidity positions. The Kingdom of Saudi Arabia issued a USD 1.2 billion sukuk; the Kingdom of Bahrain issued two bonds with a combined value of USD 921 million; and the Sultanate of Oman issued a bond raising USD 789 million.
GCC equity markets performance by cumulative total return since 1 January 2020
Source: Eikon (Thomson Reuter), PwC Analysis
Share price performance of 2019, 2020 and 2021 GCC IPOs* by sector, relative to the respective all share index, from the IPO date to 30 June 2021
Source: Eikon (Thomson Reuter), PwC Analysis
The percentage figures shown in the chart above are the average share price movements of the newly listed companies under each sector relative to the index performance of the respective exchange.
* The IPOs of Al Moammar Information System Company and Sprinkle Holding BSC have been excluded due to insufficient data.
** The increase is mainly contributed by an increase of 1170% in the share price of Boursa Kuwait Securities Company (K.P.S.C.). If Boursa Kuwait Securities Company (K.P.S.C.) is excluded, the increase would be 5%.
The 582 IPOs globally in Q2 2021 raised a total of USD 131.0 billion (Q2 2020: USD 43.6 billion). The reopening of global economies boosted by an effective vaccine rollout, accommodative monetary policies and strong macroeconomic indicators contributed to the improvement of global capital markets performance. Although not quite matching the record levels of Q1 2021 when USD 202.9 billion was raised, Q2 2021 is still one of the strongest second quarters on record. The Q1 to Q2 decline s largely attributed to the decline in SPAC activity which dropped by 83% globally partly due to increasing SEC scrutiny. In Q1 2021 SPAC activity generated USD 97.7 billion, compared to USD 16.6 billion in Q2 2021.
Global Further Offerings (“FO”) activity decreased, driven by the Americas. There were 889 FOs in Q2 2021 globally raising USD 209.4 billion compared to 1,285 FOs raising proceeds of USD 247.9 billion.
Although IPO activity in the Americas fell compared to Q1 2021, the region has still led the global IPO market in terms of proceeds and number of listings accounting for USD 63.3 billion (49%) of the global proceeds. The NYSE hosted the largest IPO of Chinese company DiDi Global Inc which generated proceeds of USD 4.4 billion.
IPO activity in the Asia-pacific region has increased both in terms of number of IPOs and proceeds. The HKEX hosted the second largest IPO of Q2 2021 by JD Logistics Inc raising USD 3.6 billion, while the SSE hosted the third largest IPO by China Three Gorges Renewables (Group) Co Ltd which raised USD 3.5 billion. Despite the fall in number of FO deals the total proceeds increased from Q1 2021, with technology and financial sectors dominating.
The European region generated USD 27.5 billion from 145 IPOs in Q2 2021 compared to 91 IPOs generating similar proceeds in Q1 2021. Financials and Consumer Discretionary sectors dominated EMEA IPOs, accounting for 49% of total proceeds raised in Q2 2021.
Q2 2021 has carried on the momentum set in Q1 2021. The remainder of the year boasts a strong IPO pipeline with a significant number of companies gearing up for IPOs or SPAC mergers.
Many central banks have lowered interest rates to record lows to restart economies, which may make debt funding an attractive option for some companies. However, management should also consider how their credit ratings might have changed because of the impact of COVID-19 on their businesses which could offset the cost reduction offered by such central banks initiatives.
With increasing evidence of the effectiveness of vaccines against COVID-19 and the step up in rollout of vaccination programs worldwide, the economic recovery is expected to continue. This is likely going to have a positive impact on investors’ confidence, potentially paving the way for increasing equity activity in the near future.
Liquidity understandably is limited in the market during the current uncertain times and companies which are interested in seeking financing from the market should get themselves ready, so that they will be able to capture the available liquidity before it is taken, in the ever narrowing market window. This requires having a supportable financial track record that complies with regulatory requirements and recent credit rating, culminating in having a prospectus and investor presentation on standby.
Companies interested in equity funding in the longer term shouldn’t sit idle either. With potential down time because of reduced operating activities, management could make use of the precious time in preparing for a future IPO. Because of the regulatory requirements, which vary depending on your chosen market, it typically takes 6-12 months for a private company to get ready for an IPO – a process which involves looking at how your business has performed over the last 3 years, its outlook and its corporate governance.
Ensuring all the regulatory requirements are met is a given in all IPOs. One key aspect to also consider in an IPO is the equity story - a company’s appeal to potential investors. In the post COVID-19 era, equity story will need to be stronger than ever. Executives need to ensure the company has a solid track record and a future-proof strategy that will resonate with its target investors. Some of the major themes apparent in equity transactions globally in the recent quarters include a strong balance sheet, efficient capital structure and environmental, social and governance (ESG) premium.
At PwC, we understand that good preparation is essential to a successful IPO and debt issuance. We have experience in a wide range of international, regional and domestic IPOs and debt issuances, and can provide expert guidance from initial planning, through to execution and beyond.
Our IPO and debt Readiness Assessment is an early stage diagnostic review of the critical areas needed for a successful issuance. We highlight where current processes, procedures, structures and practices fall short of the requirements for a company whose securities are to be publicly traded and provide recommendations on how to address these gaps. In the current environment, it is equally important to address the risks associated with COVID-19. which will have an accounting and financial reporting implication in most companies, including amongst others, impairment of assets, changes to lease terms and government support. Our assessment can be tailored to include these aspects as well as some broader areas such as business continuity and contingency planning.
We work with issuers and their advisors to provide IPO and debt advisory and assurance services. This may include working capital reporting, financial due diligence, financial positions and prospects procedures assessment, assistance with MD&A drafting in relation to a prospectus, comfort letters and project management.
