Why the Gulf will remain a powerhouse for IPOs

A multitude of catalysts, including robust growth, economic diversification plans and strong investor demand for initial public offerings in the Gulf region is set to continue driving new listings in 2025 and beyond.

The quality of the companies being listed, as well as ample liquidity in markets that has supported the IPO rush over the past three years, will continue to fuel the listing activity next year, analysts say.

The pipeline of potential issuers includes companies from sectors including technology, consumer services, transportation, logistics, and health care.

“Multiple factors have fuelled the regional IPO momentum. Improving secondary market liquidity, increasing FII inflows, higher weights in international indices, improving disclosures and investor friendly regulatory changes are acting as a catalyst for primary market offerings,” says Nishit Lakhotia, head of research at SICO Bank, Bahrain.

“In addition, factors such as divestment priorities of government, incentives and push by regulators for companies to list, ability to fetch reasonable valuations for selling shareholders [are also supporting the market].”

The Gulf countries are rapidly diversifying their economies away from oil with a focus on non-oil sectors such as tourism and technology, as well as financial services.

Opening the regional stock markets to foreign qualified institutional investors has also been a central plank of the broader economic transformation agenda.

“Investors, both regional and global, are also drawn to the GCC markets because of their resilience and strong performance in comparison to volatile markets elsewhere,” says Tony Hallside, chief executive, STP Partners, a prime brokerage firm based in DIFC.

“Furthermore, the limited pool of high-quality companies in other regions has driven global investor attention towards the Gulf, where returns have been impressive.”

The regional markets bucked the global trend where IPO activity remained muted amid a global economic slowdown, market volatility and geopolitical shifts.

In the third quarter, volumes fell by 14 per cent annually to 310 IPOs and proceeds by 35 per cent to $24.9 billion, according to an EY report.

“Even as volatility fuelled a downturn in other regions, the GCC has seen robust growth and in fact, the global financial volatility which resulted in a drop in IPO activity outside the region has helped GCC companies sell equity at high valuations,” Neetika Gupta, head of research at Ubhar Capital, Oman, tells The National.

“This resilience was largely due to the confidence shown by regional issuers in the business fundamentals of their companies and their effective communication with the market, which helped to generate a high level of investor appetite.”

Privatisation and market expansion drive

The push for privatisation in the Gulf and the push to expand the size and scope of the regional capital markets have also propelled new issuances over the past few years.

Analysts say the IPO landscape in the Gulf is evolving beyond its traditional focus on energy and finance, with Talabat being a notable example of this shift.

Last month, Talabat Holding, the Middle Eastern unit of Germany's food delivery platform Delivery Hero, raised Dh7.5 billion ($2.04 billion) through its IPO, setting the price at the top of the range for the biggest public float in the Gulf this year. The offering attracted a double-digit oversubscription level.

Talabat's IPO followed Lulu Group's debut on the Abu Dhabi Securities Exchange in November, after the retailer raised Dh6.32 billion from its offering.

UAE stock markets alone hit $1 trillion in market capitalisation last month, primarily driven by IPOs as well as strong earnings, according to data compiled by Bloomberg.

The combined market capitalisation of the UAE's two stock exchanges – ADX and Dubai Financial Market – exceeded that of Milan or Madrid in November, driven in part by new listings in the past few years.

In total, there have been 27 major IPOs in the UAE since January 2021 – 18 on the ADX, and nine on the DFM.

The Dubai Water and Electricity Authority (Dewa) tops the list in terms of value, having raised $6.07 billion in 2022, followed by Adnoc Gas with $2.47 billion in 2023, Talabat Holding this year, and Borouge, which raised $2 billion in 2022.

Adding to the diversity were IPOs from a wide range of sectors, including food and beverage, retail, gas, ports, logistics, education, transportation, health care, chemicals, utilities, and tech, apart from energy, according to Bloomberg data.

Similarly, in Saudi Arabia, the IPO market has seen a shift in focus towards non-oil industries, adding to market depth and leading to a more diversified and resilient market environment.

Going forward, analysts anticipate a greater presence from emerging sectors such as FinTech, electric vehicles, telecom, e-commerce, and financial services, in line with global trends and the region’s push for innovation.

“Airlines is one sector that should have more listings given robust expansion plans, recent strong performance and a somewhat natural hedge to oil weakness as they benefit on cost front. Also we should see more offering in sectors such as logistics, utilities, commodities, technology and financial services, including FinTech,” says Mr Lakhotia.

Market performance

Most of the stocks that went public in the past three years across the region are currently outperforming other volatile markets in terms of post-listing gains.

In the UAE, for example, of the 27 stocks that debuted on the equity markets from January 2021, 17 or 63 per cent are trading above their offer prices (as on December 17), according to data from Bloomberg.

In Saudi Arabia too, the IPO scorecard of floated companies has been stellar over the past few years. Out of more than 40 major companies that went public since January 2021, only nine of the stocks are trading below their offer price as of December 17, Bloomberg data show.

“The GCC's proactive reforms in capital markets and regulations have also played a crucial role in fostering a favourable environment for IPOs. These elements combined explain why the region's IPOs are not just frequent but also performing better in terms of investor confidence and subscription rates,” says Mr Hallside.

Emergence of smaller markets

The influx of new listings in the past two years is not limited to Saudi Arabia and the UAE. Oman’s stock market, for instance – the smallest among the Gulf in terms of market cap – saw a couple of floats in the primary market amid a reform push that is now under way.

Shares of OQ Base Industries, the sultanate’s only integrated producer of methanol, ammonia, and LPG products, started trading this month following an IPO that raised about 188 million Omani rials ($489 million).

In October, OQ Exploration and Production (OQEP), also a subsidiary of Oman’s state-run energy company OQ, raised 780 million rials through its IPO, making it the sultanate's biggest offering. OQ’s pipeline business – OQ Gas Networks – also listed in October last year, raising 288 million rials.

“The Oman government has been following suit with other regional players to enhance the depth and liquidity of its market with key government IPOs,” Ali Khalpey, managing director and head – equity capital markets, EFG Hermes, Dubai, tells The National.

“We see this as a positive driver for the region’s capital markets and a successful outcome for the governments that kick-started these markets with the government backed IPOs.”

The sultanate is aiming to privatise more than 30 government-owned firms between 2021 and 2025.

Looking ahead, the outlook for the IPO market in the Gulf is promising with a robust pipeline of companies from various sectors preparing to float on the markets, analysts say.

“The IPO pipeline should be well supported by the region’s efforts to invest heavily in infrastructure, promote economic diversification and open up to foreign investment, especially as the GCC’s largest markets make regulatory changes to meet international standards and incentivise private companies to list on regional stock exchanges,” says Ms Gupta.