Strong economic growth sparks Gulf IPO boom

DUBAI: Stock flotations are booming in the Gulf region, spurred by strong economic growth, a wealth of spare cash created by record-high oil prices and government encouragement, market specialists say.The most recent case, an initial public offering by Dubai port operator DP World, shows the magnitude of demand. The state-owned company yesterday said it had raised $4.96bn in an IPO that was 15 times oversubscribed.

The Middle East's largest IPO ever, it compared with $5.9bn for all 26 offerings made in the GCC in the first nine months of this year.

"Strong GDP growth averaging eight per cent per year, excess liquidity due to high oil prices, structural reforms by regional governments and privatisation initiatives have all contributed to an increase in the number of IPOs," said Tamer Bazzari, a partner in the Dubai-based Rasmala investment bank.

Before DP World's IPO, the largest public share offer was made by Saudi Telecom in 2003.

It raised more than $4bn dollars by selling a 30pc stake, a third of which went to two public pension funds.

"Saudi Arabia and the UAE are at the forefront of IPO activity in the region, having accounted for 70pc of all GCC IPOs over the last decade," Bazzari said.

Saudi IPOs in the first nine months of this year amounted to $3.7bn, compared with $1.6bn in the UAE and $389 million in Qatar.

The trend had been growing in the GCC, with total closed IPOs reaching $1.5bn in 2004, $6bn in 2005 and $7.5bn last year, according to Abu Dhabi-based private equity firm Gulf Capital.

The region accounted for the bulk of IPOs in the Middle East, which Ernst and Young said numbered 87 last year with a total value of $10.8bn.

"It will continue to grow sharply ... The appetite continues to be high," said Brad Bourland, chief economist at Riyadh-based Jadwa Investment.

"There are about 100 (new) IPOs in the pipeline," he said, while Gulf Capital said IPOs between this year and 2010 should exceed 106.

"Regional liquidity, combined with increasing interest by international investors, is expected to contribute to the success of future IPOs," Bazzari said.

Gulf countries are enjoying handsome windfalls on the back of record-high crude prices, which have pumped huge funds into their economies and jumpstarted multi-billion-dollar infrastructure projects that had been delayed.

Abundant liquidity appears also to face a shortage in investment opportunities as almost all IPOs in the region are over-subscribed.

Early last year, investors from GCC countries slept in tents and cars in Doha as they swamped the Qatari capital for an IPO by Al Rayan bank. The newly formed lender had offered 55pc of its capital for $1.13bn and ended up six times oversubscribed.