Total raised by Gulf rights issues soars 456% in one year

According to Trowers & Hamlins, the majority of the past year's growth took place in the second half of 2005, when US$10.26bn was raised. However, the amount raised in the first half of 2006 still held up well, despite the fall in the region's stockmarkets during this period, coming in at $4.43bn.

Comments Andrew Rae, Partner of Trowers & Hamlins; "During 2004/5, Gulf rights issues were starting to take off as a source of corporate finance, but in 2005/6 it really skyrocketed."

"In the last few years, Middle Eastern companies have increasingly been considering new methods of raising finance, such as rights issues, as an alternative to more traditional forms of funding like bank loans as they seek to capitalise on new growth opportunities. At the same time, investor appetite for shares in Gulf-based businesses has been growing exponentially."

He adds, "Despite the region's stockmarkets' correction in the early part of this year, our research shows that there is still significant demand for sensibly-priced rights issues, demonstrating that confidence in Gulf markets remains strong. As things stand, it is not expected that the recent troubles between Lebanon and Israel will have any significant adverse impact on the economic stability of the Gulf region as a whole."

According to Andrew Rae, issuers of securities in the Gulf continue to benefit from the high level of oil prices, as more and more investors look to re-invest their petro-dollars in local public equity markets as more opportunities open up, rather than foreign ones as has historically tended to be the case.

Rae says that companies are increasingly using the cash raised not only to grow organically by funding their own investment projects but also to fuel M&A activity both at home and across borders with other Gulf states. For example, a subsidiary of Saudi-based Savola Group acquired a 70% stake in Egyptian plastics company New Marina Plast in May. Savola Group undertook a rights issue in January.

"In the future, we may well see Gulf companies increasingly look to use the finance raised from rights issues to fund acquisitions overseas as well, particularly in Europe and Asia," he adds.

Companies in growing range of industries now undertaking rights issues

Trowers & Hamlins' research reveals that companies from a growing range of industries are now undertaking rights issues. Whereas in 2004/5, rights issues were concentrated in just four sectors: financial services, construction and real estate, transport and power and utilities, now companies in industries such as telecoms and IT and agriculture and food are also following suit.

"Gulf economies and their markets are diversifying as they mature, offering more and more opportunities to investors. This is evident not just in the increasing number of types of new, sophisticated financial instruments that are now available, such as rights and bond issues and other types of Islamic finance, but the range of industry sectors investors can choose from," says Andrew Rae.