IPO experts call for faster pace of privatisation across the GCC

Addressing more than 300 delegates at the 1st Middle East IPO Summit, held at the Al Murooj Rotana Hotel, Dubai, Mohammed H. Abudawood, Vice Chairman of Saudi Arabia's Abudawood Group of Companies, urged regional governments to plan for potentially "huge" market corrections and called for the establishment of professional mechanisms to advise investors and prevent speculation disaster.

Turnover in the Saudi stock market today is larger than stock markets in Switzerland, Helsinki (OMX), Toronto (TSX), Australia, Taiwan, Hong Kong, India, Shanghai and Oslo, said Abudawood. "Is this real? Does this make sense? Will the trend of high growth continue? Of course we want it to. The issue is when will the bubble burst and how to plan for this correction smartly.

"I recommend that the public sector starts selling all held stocks to the public and at a faster pace. This is called privatization - it has to happen now. Governments are planning this. We're only asking for a faster pace. Let's allow the people to share this wealth. Let's build a real middle class, no matter how small their ownership is - at least they are learning to invest and save, even if they are leveraging to own stocks."

Abudawood said if governments in the region failed to act quickly, the consequences of "a huge market correction of say 30 per cent" would be "dire" and "unimaginable." "These are political decisions with serious economic ramifications. You cannot afford a market crash. Shortsightedness is lethal," he warned.

"We all have an obligation as an educated and professional business community to strive to lobby for a real economy for our developing countries, keeping in mind future generations.

"As a private sector we have to always demand more flexibility to allow growth and prosperity. Additionally, we have to change the whole legislative process to allow business to have the freedom to get there. The immediate need is to change companies' law. We do not have to reinvent the wheel here. Countries all over the world have opened up their economies and given freedom to the private sector to do what is best for the economy."

Commenting on the significance of IPOs to the development of GCC economies, the summit's chairman, John Sandwick, Managing Director of Encore Management SA, Switzerland, warned delegates that GDP growth alone is not a sufficient indicator of economic well being. "It's not GDP growth that makes an economy great, but GDP growth combined with productivity growth, and while we're witnessing very strong GDP growth rates, we're witnessing only half a percent productivity growth rates," he said.

"How do you get GDP growth and productivity growth combined, simultaneously in a growing economy? One way to do that is to release the energy and power of private companies by making them public companies, and in the process making them more efficient, more accountable, more transparent, contributing to overall economic gains and productivity."

Dr. Karim El Solh, CEO of UAE-based Gulf Capital, told delegates there will be 116 IPOs in the GCC within the next two years, up from 25 in 2005 and 12 in 2004. The average size of IPOs between 2006 and 2008 is expected to be US$292 million, up from US$248 million in 2005. Solh said he expects future IPOs in sectors not currently represented in GCC stock markets, including travel and tourism, transportation services, media and education. "Investors are asking for better opportunities in these sectors," he said.

"116 IPOs will suck a lot of liquidity, but overall demand per IPO is bound to drop, oversubscription rates will drop and IPO performance will come back to reality," he added.

"The boom will continue in IPOs. Only IPOs from the most solid companies with good growth momentum and sensible pricing will be successful. Gulf investors are becoming more discerning and support only quality IPOs. This is a healthy development and will ensure only the highest IPOs come to the market."

Identifying an "irrational exuberance" in IPOs in 2005, Solh said, "In 2006, I think we're back to reality with the supply of offerings. The way forward for investors given the flood of potential offerings is to start doing their homework, research target companies and really only invest in quality IPOs."

Barth de Ridder, Divisional Director, Conferences & Training, IIR Middle East, the organiser of the event, said,

"The issues raised on the opening day of the 1st Middle East IPO Summit and the resulting discussions and debate between government officials and industry experts highlights the value and importance of this forum."

Gareth Parry, Project Director, IPO Summit, said, "We're delighted at the dramatic response to the Middle East's first IPO summit and at the willingness of delegates to waste no time in getting to the heart of issues that are central to the well being and development of economies throughout the GCC."