Middle East capital markets handle global downturn better than anticipated

Though capital raised was down 23% in the region than in the previous quarter, regional markets fared much better compared to global markets.

Funds raised globally were down 66% and there have been 108 fewer deals, the lowest activity level seen since 2003, following the dotcom collapse, according to the quarterly Global IPO update from Ernst & Young, the region's leading professional services firm.

Five IPOs from the Middle East entered the list of top 20 global IPOs by funds raised in the third quarter. The Saudi Arabian Mining Company IPO was the largest in the world by capital raised with $2.467bn. Other regional IPOs in the top 20 list by capital raised included the UAE's Drake & Scull with $333m, the UAE's Damas International with $226m and two Saudi companies - Astra Industrial Group with $248m and Methanol Chemicals/ CHEMANOL with $193m.

Azhar Zafar, Head of Mergers & Acquisitions, Ernst & Young Middle East, said:

"Saudi Arabia was placed second globally in terms of funds raised by any country with $3.0bn, equalling 23% of the global IPO market. China and Australia were placed first and third with 25% ($3.3bn), and 10% ($1.3bn) respectively. The UAE came in second in the MENA region with $600m, equivalent to 5% of global capital raised."

From the total IPOs, Saudi Arabia hosted three of the IPOs whilst the UAE hosted two IPOs. However, the leader in the number of IPOs in the region was Jordan with six.

According to Phil Gandier, Managing Partner, Transaction Advisory Services, Ernst & Young Middle East, "It is interesting to note that the deal threshold to make the global top 20 has fallen significantly since 2007 when the minimum deal value required to make the group was $1.9bn; this quarter it was $119m. However, the region is dealing with the global downturn much better than anticipated. While short-term performance will be affected, long-term outcomes are still looking positive."

Global IPO activity has fallen to its lowest level since 2003. During the third quarter of 2008, a total of 159 IPOs worldwide raised $13.1bn in capital. This is the lowest level of quarterly activity - by number of deals and capital raised - since the second quarter of 2003, which recorded 130 IPOs and $6.8bn in cumulative capital.

Aggregate data for the first three quarters of 2008 shows that the total number of IPOs and value of funds raised (676, $92.5bn) globally has halved compared with the same period over 2007 (1388, $185.0bn). In addition 242 IPOs have been postponed or withdrawn in 2008 to date compared with 169 during the total of 2007.

Gil Forer, Global Director of IPO initiatives at Ernst & Young, says: "In the wake of turbulent economic times, we have understandably seen IPO activity slow. However, we know from previous experience that markets do eventually recover, for example while the reasons for the internet bubble were different - recovery took around three years. And importantly the IPO pipeline remains strong, geographically diverse and of high quality. Companies that have put in the groundwork to go public are well-positioned to take advantage of an IPO once market conditions improve."