Persian Gulf IPO Lull Persists as Companies Have Cash, SEI Says

The drought in Persian Gulf initial public offerings will probably continue this year as most of the region’s privately owned companies don’t need to raise funds from share sales to expand, SEI Investments Co. said.

“The good companies remain very cash-flow positive in the region,” Jahangir Aka, the head of SEI Investments Middle East, whose parent has $195 billion in assets under management, said in Dubai on Jan. 3. “Their ability to expand on their own working capital is very much there.”

Al Habtoor Group LLC, a Dubai-based group controlled by billionaire Khalaf Al Habtoor, last month delayed an IPO as trading volume failed to rebound. The company invested about 5.9 billion dirhams ($1.6 billion) in the hospitality industry last year as it undertakes projects including the Waldorf Astoria on artificial islands off the emirate’s coast.

Arab uprisings that ousted leaders in Tunisia, Egypt and Libya and a deepening debt crisis in Europe slowed regional share sales in the past two years. Money raised from IPOs in the Middle East and North Africa reached $2 billion in 2012, Ernst & Young International said last month. In 2008, IPOs valued at more than $80 billion were announced, according to data compiled by Bloomberg.

The IPO pipeline has been limited as privately held businesses including Al Habtoor await a revival in volume on regional stock markets. Between 75 percent and 90 percent of Middle Eastern companies are owned and run by families, according to the Dubai-based Tharawat Family Business Forum, an independent network of Arab family businesses.

Scant Volumes

Average trading volume for Dubai’s benchmark index rose 60 percent to 160 million shares in 2012 -- which is still about half the volume traded in 2008, according to data compiled by Bloomberg. On Abu Dhabi’s index, average volume last year was 7 percent lower than 2010. Dubai’s measure surged 20 percent in 2012, making it the best-performer in the six-nation Gulf Cooperation Council.

“It’s only a few pennies that have run the market up on low volume,” Aka said. “So why should the best-run companies that churn cash on cash go to the capital markets?”

Al Habtoor’s u-turn in 2012 followed Topaz Energy & Marine Plc, a Dubai-based oil and gas services company, which opted out of a share sale in London in 2011 due to “uncertain investment climate for new issues.” Axiom Ltd., a Dubai-based phone retailer, in late 2010 canceled plans to raise about $100 million because of “widespread concerns about market conditions and liquidity.”

‘Only Catalyst’

The slowdown hasn’t been limited to the region. Companies raised $112 billion worldwide through IPOs in 2012, the least since 2008, amid signs of a global economic slowdown, according to data compiled by Bloomberg.

IPOs in the Middle East did pick up last year, with sales more than doubling from $844 million raised in 2011, Ernst & Young said Dec. 23. Asiacell Communications PJSC, the Iraqi telecom operator majority-owned by Qatar Telecom QSC, plans to raise 1.49 trillion dinars ($1.3 billion) this month in the Middle East’s biggest IPO in more than four years.

Still, in the GCC, mobile-phone operator Omani Qatari Telecommunications Co. SAOG and Aluminium Bahrain BSC, a metals producer, have lost about 25 percent and 41 percent, respectively, following share sales in late 2010.

The “only catalyst” that could rejuvenate the Gulf’s IPO pipeline is “second or third generation family breakaways,” SEI’s Aka said.

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