Why do the Gulf stock markets continue with these costly IPOs?

You have to ask: how sensible is to hold an IPO for a certain amount knowing that it will cost the entire stock market a far higher loss in value? Is this about raising capital or destroying it?

Yet the Gulf stock market authorities refuse to play game. No doubt each IPO is a special case, but should the companies themselves be saying no to an IPO?

For the normal business practice, and the normal duty to shareholders is to sell a company's shares for the highest price in an IPO. In a depressed market a company is bound to sell its shares for a bad price.

Why sell cheaply?

So why sell off shares now, when prices are on the floor? Perhaps companies are badly advised by advisors whose fees can be considerable.

But most of the concerns going public now are well supported by founder shareholders, often from the state sector, and would have no trouble raising bank debt at very reasonable rates until the right time came for an IPO.

And with the recent Air Arabia IPO only covered 1.5 times by subscriptions it looks as even the idea that IPOs are partly a way of spreading wealth around has come to an end. For as soon as trading starts in this IPO the participants are unlikely to make much of a premium and if they have borrowed to fund their IPO purchase could well be in a loss.

Not capital for free

It rather appears as if the investment bankers who had to work very hard in the early 2000s to convince any company to hold an IPO may have done their work too effectively. The general notion is that IPOs are a way of raising capital that you never have to repay and for which a dividend can be paid according to the health of the company.

For companies then this is a means of acquiring capital for nothing. But it just is not true if they are selling the family silver for bronze today when they could get real gold tomorrow.

And if in the process of raising capital for one new company you wipe hundreds of millions of the value of an entire national stock market capitalization, then why do it? If any investment banker has a valid answer we would be happy to publish his or her response.