Qatar Petroleum and Just Falafel are leading companies in the Persian Gulf out of a four-year drought in initial public offerings, tapping demand that pushed Dubai’s equity index up the most in 2013 among major markets.
Qatar Petroleum, the state-run energy company, plans to raise 3.2 billion riyals ($879 million) from a share sale in unit Mesaieed Petrochemical Holding Co. next quarter, two people with knowledge of the plan said this week. Just Falafel, the fast food chain that plans to expand its more than 40 restaurants, is considering the sale of a 25 percent stake this year, two people aware of the matter said last week.
“There is significant pent up demand and if this next cohort can raise at reasonable valuations and perform well, many more may follow,” Emad Mostaque, a London-based strategist at Noah Capital Markets, said by e-mail Sept. 23. “Companies need cash for expansion and valuations are now reasonable again to raise equity capital.”
The DFM General Index has surged 69 percent this year, more than any benchmark measure in the 50 largest equity markets globally, pushing valuations to near a five-year high, according to data compiled by Bloomberg. The Abu Dhabi Securities Market General Index, the next biggest gainer, is up 46 percent. Gulf Cooperation Council companies raised an average $1.33 billion through domestic IPOs in the four years to 2012, down about 80 percent from the previous four years, the data show.
Stocks across the region are rallying as economic growth accelerates, spurred by oil prices that have risen above $100 per barrel and expansionary fiscal policies following protests during the so-called Arab Spring. The gains are encouraging companies to sell shares after trading volumes and valuations plummeted following the global financial crisis.
Abu Dhabi’s benchmark has a price-to-book value of 1.4 after rebounding from a low of 0.95 in January, while the measure is at 1.1 for Dubai.
Qatar’s QE Index has climbed 15 percent in 2013, with book values up 12 percent from an April low. The index has declined 2.9 percent this week on news of Qatar Petroleum’s plans.
“There is weakness evident in Qatar as predominantly locals investors trim positions in order to have cash ready to deploy in the eagerly anticipated Mesaieed IPO,” Julian Bruce, head of institutional trading at EFG-Hermes UAE Ltd. in Dubai, said today in e-mailed comments.
Senaat, a government-owned holding company in Abu Dhabi, hired banks for an IPO, two people with knowledge of the appointments, who asked not to be identified because the details are private, said this month. A Senaat spokeswoman didn’t respond to e-mails seeking comment. National Takaful Co. was the last company to list in Abu Dhabi in November 2011.
The IPO of Just Falafel would be the first in Dubai since Drake & Scull International raised 1.2 billion dirhams ($327 million) in March 2009. A call and e-mails to Just Falafel weren’t returned.
MSCI Inc. said in June it will raise the United Arab Emirates and Qatar to emerging market status from frontier rankings in May 2014. The upgrade will bring in an estimated $175 million from exchange traded funds to Qatar and $170 million to the U.A.E., Bank of America Merrill Lynch said in a research note Sept. 23.
“Getting the emerging market status will lower the cost of equity,” Talal Touqan, the head of research at Al Ramz Securities LLC, said by phone from Abu Dhabi Sept. 23. “Lower cost of capital is the driver for a potential revival of IPOs.”
Some companies are choosing not to list locally. Gulf Capital, an Abu Dhabi-based private equity house, hired Rothschild to advise on a London IPO for its Gulf Marine unit, Chief Executive Officer Karim El Solh said in a phone interview Sept. 16. The Abraaj Group, a Dubai buyout firm managing $7.5 billion of assets, is also planning an IPO in the U.K. capital for its Stanford Marine Group, a person familiar with the plan said Sept. 15. A spokeswoman for Abraaj declined to comment.
Companies are encouraged by the success of NMC Health Plc’s listing overseas, Noah Capital Markets’ Mostaque said. The U.A.E.-based health-care provider raised 117 million pounds ($188 million) selling 55.7 million shares in London at 210 pence each in April 2012. The shares were at 328.3 at 12:36 p.m. in London.
IPOs in the region proved less attractive for investors in recent years. Dubai-based Depa Ltd., which fits out building interiors, sold stock on Nasdaq Dubai in 2008 at $1.55 a share. The company now trades at 46 cents. DP World Ltd., the Dubai company that operates ports from Europe to Asia, consolidated shares in 2011 after they tumbled.
In the U.A.E., “people still think of the stories of Depa, or DP World, which were not successful listings,” said Touqan.
Al Habtoor Group LLC, which includes hospitality, real estate and automotive divisions and was valued at $6 billion by accounting firm Grant Thornton last year, said last week it’s unlikely to revisit IPO plans before 2016.
Doha-based Qatar Petroleum hired Qatar National Bank SAQ to manage the sale of Mesaieed and Deutsche Bank AG as financial adviser, the people, who asked not to be identified because the information isn’t public, said this week. A spokesman for Qatar Petroleum didn’t return a call seeking comment.
Just Falafel hired HK Advisory Services Ltd. to manage the potential listing on Nasdaq Dubai, according to the people, who asked not to be identified because the matter isn’t public.
The regional markets just require one “anchor IPO” to trigger a new wave of share sales, Al Ramz Securities’ Touqan said. “We need to register one success story, then we might see 20 or 30 companies listing within one year.”