Activity declines in the Middle East IPO market in Q3 of 2009: Ernst and Young

A total of four companies listed in the Middle East in Q3 2009 raised $871.79m in Q3 2009 compared to five IPOs raising $1.021bn in the previous quarter and 14 IPOs raising $3.74bn during the Q3 '08. A total of $1.97bn has been raised in Middle East IPOs in the first three quarters of 2009 compared to $12.44bn in same period last year.

Three IPOs in Saudi Arabia and one in Syria raised a total of $871.79m in Q3 '09. National Petrochemical Company of Saudi Arabia was the largest regional IPO in Q3 2009, raising $640.85m followed by the Saudi Steel Pipe Co. with $106.81m. Saudi Arabia's Al Mouwasat Medical Services with $87.99m and Qatar National Bank - Syria with $36.14m were the other two new issues.

Phil Gandier, Managing Partner, Transaction Advisory Services, Ernst & Young Middle East, commented on the reasons for the reduced IPO activity:

"Companies are still wary of the strength of the recovery in the region. Whilst the market may not change significantly during the remainder of this year, once there is evidence of a sustained recovery in the region, there is likely to be an increase of fund-raising on the regional stock markets, and the 152 announced, delayed or rumored IPOs would be anxious to list"

A shifting world order

Globally, a succession of billion dollar plus Chinese IPOs helped drive the total value of the market in Q3 2009 to $37.8bn: the highest amount since Q2 2008 and an increase of 292% on Q2 2009. The number of IPOs (149) was the highest quarterly total this year but remains well below the trend in recent years.

Globally, the largest IPO in the quarter (and the year so far) was China State Construction Engineering Corp, which listed in Shanghai in July 2009 at $7.3bn.

Nearly 63% of the total global IPO value in Q3 was for the 62 Chinese companies which listed in the period. US firms were second with total value of $3.2bn or 8.4% of global capital raised and four of the top 20 deals by size. Indian firms were third with a total value of $2.6bn or 7.2% of global capital raised, and three of the top 20 deals.

Whilst China and the rest of Asia boomed, Europe is still very much stuck in the doldrums. Total value across Europe was $189.2m or 0.5% of the Q3 global figure.

Gregory K. Ericksen, Ernst & Young's Global Vice Chair Strategic Growth Markets says, "It has been a remarkable quarter for the IPO market in Asia and in particular for China. Not only has there been a welcome return to activity with a series of significant listings, it is also noticeable that whereas in the early part of this decade Chinese or Indian companies might have considered listing in developed markets, today there is no question around Mumbai or Shanghai's capacity to host IPOs of almost any scale."

Ericksen adds, "Even though we saw the globalization of the capital markets with companies, investors and exchanges looking worldwide for growth opportunities five years ago, the pace of that change has really accelerated with the recession and the relative speed with which the Chinese and Indian economies have recovered from the downturn."

Q4 IPO outlook

Globally, in Q4 '09, Ernst & Young expects another strong quarter for the IPO market in Asia; the absence of a rapid rebound in Europe; and a cautious but substantive improvement in IPO sentiment in the US as risk appetite returns.
Ericksen concludes, "This doesn't quite feel like a 'dead cat bounce', but nor is it a universal recovery in global IPO markets. Until we see properly functioning markets globally, and in particular a return to confidence on the main European bourses, questions will remain about the health of the recovery and there will remain an excessive reliance on a handful of large Chinese listings to prop up the overall numbers. So for now it remains cautious optimism."