Market Focus | Middle East Investment Banking
GCC Countries Use IPOs To Distribute Oil Wealth
State-owned Qatar Petroleum plans to list four companies in the next 10 years, as Qatar seeks to develop a long-term savings and investment culture and distribute its hydrocarbon wealth to the country’s citizens. The national oil and gas company floated a 26% stake in its Mesaieed Petrochemical Holding subsidiary last year, raising $880 million in the country’s biggest initial public offering in five years.
The petrochemical company’s IPO was restricted to Qatari nationals, including minors, who face limits on selling the shares before they become adults. Priced at a significant discount, the shares rose fivefold in their first day of trading on the Qatar Exchange. Foreign investors are allowed to trade Mesaieed’s shares, now that they have been listed.
The equity markets play a dual role in the region, providing capital for issuers and liquidity for equity investors, just as they do in developed economies, as well as acting as a wealth-distribution mechanism from the state to the general public, says Michael Katounas, deputy CEO and head of investment banking at asset manager QInvest. “Although oil prices clearly affect perceptions of wealth, significant diversification has taken place in the last few years, with non-oil national champions offering an attractive way to invest in the consumer growth of the region,” Katounas says. “It is those industrial or service-driven corporates that will generate an increased level of demand in the equity capital markets.”
Equity capital market issuance in the Middle East rose 173% last year to $11.4 billion, according to Thomson Reuters. There were 13 initial public offerings, including a $6 billion offering by Jeddah-based National Commercial Bank that was the largest ever in the region. The previous record IPO was the $5 billion offering by Dubai’s DP World in 2007.
HSBC Saudi Arabia and GIB Capital were the financial advisers and lead managers for the sale of a 25% stake in NCB, the largest lender in Saudi Arabia. The IPO was limited to Saudi investors. Of the 500 million shares sold, 200 million shares were allocated to the Public Pension Agency, with the remaining 300 million shares reserved for individual investors. Retail investors placed orders for more than 23 times the shares offered for sale, despite a ruling by religious leaders that the IPO was forbidden under Islamic law, which bans the charging of interest. NCB plans to convert to a fully Islamic bank within five years.