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GCC Capital Markets Watch - Q3 2021

After a quiet second quarter when there were no IPOs, IPO activity picked up in Q3 2021. The region boasts 5 IPOs across KSA, UAE and Qatar, on par with Q1 2021. This is in line with the expectation that equity capital markets would be positively impacted as we move into a post Covid world and as more Covid vaccines are rolled out.

The debt market, despite having less activity than the previous quarter, continues to be busy with bonds and sukuks being listed on various exchanges across the region. The Qatari and Saudi governments led the market in bonds and sukuk listings respectively, together raising in excess of USD 5 billion.

  • USD 1.9bn

    raised from IPOs in Q3 2021 across the GCC compared to USD 325 million in Q3 2020

  • 5 IPOs

    across 3 countries in Q3 2021 compared to 3 IPOs across 2 countries in Q3 2020

  • USD 2.9bn

    sukuk issued by the Government of Saudi Arabia in Q3 2021 on Tadawul

  • USD 2.7 bn

    bonds issued by the Government of Qatar in Q3 2021 on the Qatar Stock Exchange

Regional activity

Recovering from a mostly inactive second quarter, the number of IPOs in Q3 2021 equals that seen in Q1 2021. Q3 2021 year to date boasts 11 IPOs compared to 6 in the comparative period in 2020 and approximately 2.4 times the proceeds. USD 2.5 billion has already been raised in the first three quarters of  2021 in comparison to the total of USD 1.6 billion proceeds raised in the entire year of 2020.

Three out of the five IPOs in Q3 2021 took place on Tadawul, raising USD 1.1 billion and approximately 58% of the total proceeds in the region this quarter, a stark contrast to the previous quarter when no IPO took place in the Kingdom. Arabian Internet and Communications Services Co recorded the highest proceeds amongst all IPOs in the region in the year to date raising USD 966 million. More activity is expected for the rest of the year as the Capital Markets Authority of the Kingdom of Saudi Arabia has given the green light to several companies to proceed with their IPO plans. As at Q3 2021 numerous companies in the region had commenced the IPO process, including but not limited to East Pipes Integrated Co, Almunajem Foods, Bunyan United Co, International Company for Water and Power Projects (ACWA) and Saudi Tadawul Group. ACWA has since completed its IPO in October 2021.

In Dubai, history was made when the Bitcoin Fund secondary listed on Nasdaq Dubai in June. The fund had its primary listing on the Toronto Stock Exchange back in April 2020. The fund offers investors an indirect exposure to Bitcoins, reflecting the region’s potential market interest in alternative investments. This dual listed fund is the first indexed cryptocurrency digital asset-based fund in the Middle East and North Africa. 

ADX had one IPO in the quarter, the first since 2017. Al Yah Satellite Communications Company PJSC raised  USD 731 million, the second highest amount ever recorded on the platform. Although IPO activity on the exchange has been muted in 2021, there have been a number of alternative equity funding transactions. Two companies listed their shares privately on ADX’s second market in Q3 2021 (Q2 2021:1). This quarter saw no direct listing on ADX, in contrast to Q2 2021 which witnessed Alpha Dhabi Holding PJSC’s sizeable direct listing, which by the close of its first day of trading, had brought the market capitalization of all the shares listed on the ADX to over AED 1 trillion for the first time. Q4 is looking likely to be a busy quarter for IPOs on the ADX with ADNOC Drilling and Fertiglobe having already completed their IPOs. 

There was one IPO in Qatar in Q3 2021, which took place on its recently created secondary market that caters to small and medium enterprises (SMEs) and growing companies, the Qatar Exchange Venture Market (QEVM), compared to also one listing on QEVM in the previous quarter. Mekdam Holding Group listed on the QEVM in August 2021 generating USD 76 million of proceeds.  

IPO activity in Q3 2021 was higher than Q2 2021. 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 and a few have already taken place at the time of writing.  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 SMEs and a number of governments in the region looking to privatise government assets. For instance, the Emirate of Dubai has just announced its intent to list ten government entities on Dubai Financial Market (DFM) with the aim of increasing its total trading volume to AED 3 trillion. Additional efforts by Dubai to boost liquidity in its financial markets include the approval to form a AED 2 billion market-making fund as well as a AED 1 billion fund aimed at supporting technology companies go public.

Against a particularly buoyant debt market in Q2 2021, the overall regional debt activity in Q3 decreased significantly. The number of bonds and sukuks more than halved. The biggest bond offering in Q3 2021 was the sovereign bonds issued by the Qatari government with a total value of USD 2.7 billion. The Kingdom of Saudi Arabia also issued sovereign sukuks worth USD 2.9 billion, making them the largest sukuk issuer in Q3 2021. Corporate activity was limited in comparison. Emaar Sukuk Limited issued the biggest corporate sukuk valued at USD 500 million. Another noteworthy transaction was Oman Hospitality Company S.A.O.C’s 5-year bond that was valued at USD 14 million.

The reduction in debt activity is expected to continue as oil prices increase. Stable increases in oil prices would reduce borrowing requirements in the GCC. In 2020, when oil prices plummeted, GCC sovereign nations raised approximately USD 63 billion in the debt markets. Now the reverse is expected as the oil prices has rallied nearly 80% since last November.


GCC equity markets performance by cumulative total return since 1 January 2020

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 Septemeber 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 1740% 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 56%.

Global IPO performance

Top 3 IPOs in Q3 2021 by proceeds

Krafton Incs
Exchange
Korea Exchange-KOSPI
Pricing date
29-Jul-21
Money raised
USD 3.8bn
Robinhood Markets Inc
Exchange
NASDAQ-US
Pricing date
28-Jul-21
Money raised
USD 2.3bn
KakaoBank Corp
Exchange
Korea Exchange-KOSPI
Pricing date
22-Jul-21
Money raised
USD 2.2bn

There were 512 IPOs globally in Q3 2021, raising a total of USD 112.3 billion. 2021 YTD global IPO proceeds are already 35% ($115bn) higher than full year 2020. Whilst IPO volumes were higher than Q3 2020, proceeds were 8% lower, only one of the top ten largest IPOs in the year fell in this quarter. After a record breaking first half of the year, global IPO activity has slowed down in Q3 2021 bringing the total quarterly issuance more in line with the historical levels. This can be attributed to a generally quieter summer period, diminishing SPAC issuance that raised USD18.1bn in Q3 2021 (Q1 2021: USD 97.7bn) and a pause for Chinese IPOs in the US. 

Further Offerings (“FO”) activity decreased globally for the second consecutive quarter. There were 835 FOs in Q3 2021 raising USD 166.1bn, USD 43.3bn less than last quarter.

Q3 2021 IPO activity in the Americas increased marginally to 205 IPOs compared to 198 in Q2 2021 but is significantly lower than Q1 2021 when 419 IPOs took place. The region has still led the global IPO market in terms of proceeds for the quarter at USD55.8 billion, accounting for 50% of the global proceeds. Increasing SEC scrutiny significantly limited SPAC activity since Q1 which affected the overall performance of capital markets in the US. Whilst US is still the dominant market in the Americas, the number of IPOs has almost doubled to 17 in Brazil in Q3 compared to Q2, raising USD 5.1 bn.

The number of and proceeds from IPOs in the Asia-Pacific region has marginally decreased in Q3 2021 to 235 and USD 38.8 billion respectively (Q2 2021: 239 and USD40.2 billion). The second half of the quarter was negatively impacted by volatile investor sentiment as they fear for continued global inflation, supply disruptions and the liquidity uncertainty in the Chinese real estate market. Whilst China continues to dominate in terms of IPO activity and proceeds, there were two USD1 billion plus IPOs in South Korea this quarter raising a total of USD6 billion (Krafton Inc and KakaoBank Corp) and 20 IPOs in India raised a total of USD5 billion, including the local unicorn Zomato with USD 1.2 billion proceeds.

Compared to the peak reached in Q2 2021, the proceeds raised by and the number of IPOs in the EMEA region have fallen by 36% to USD17.7 billion and 50% to 72. Notwithstanding the drop off, Q3 2021 EMEA IPOs achieved the highest proceeds amongst all the Q3s in the last five years. The UK had an exceptionally strong quarter with 25 IPOs raising USD5.3 billion accounting for nearly a third of the Q3 EMEA proceeds. Large scale IPOs in the Kingdom of Saudi Arabia and United Arab Emirates have also propelled these countries to be amongst the top 5 EMEA countries by Q3 2021 IPO proceeds, raising USD2.3 billion and USD 1.8 billion respectively.

Global IPO activity
Top countries by % of total IPO proceeds raised in YTD 2021

Top tips

Liquidity is key - debt vs equity funding

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.

Be super ready

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.

Today determines tomorrow

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.

Equity ready

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.

GCC IPO activity available from 2015 - present, filtered by stock exchange

Stock Exchange

 

Stock Exchange
Deal value ($m)
Number of IPOs
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IPO values by sector


How PwC can help you

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.

IPO and debt preparation

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.

IPO and debt execution

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.

Contact us

Abdelkhaleq Ahmad

Abdelkhaleq Ahmad

Partner, Advisory, PwC Middle East

Tel: +966 11 211 0400

Muhammad Hassan

Muhammad Hassan

Partner, Capital Markets, PwC Middle East

Tel: +971 4 3043443

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