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Saudi Arabia continues to lead MENA’s IPO market – EY

Saudi Arabia continues to lead MENA’s IPO market – EY
Tadawul remained the MENA region’s top listing venue in Q1-21
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Mubasher: Saudi Arabia witnessed the most active initial public offering (IPO) transactions across the MENA region, topping the regional listing venue in the first quarter (Q1) of 2021, a recent report by Ernst & Young (EY) unveiled.

The Saudi Exchange (Tadawul) had two listings totalling $281.6 million that represented 96% of the total amount raised by MENA IPO candidates during Q1-21.

A year earlier, the Saudi stock market saw four listings worth $1.45 billion, representing 78% of the total amount raised by MENA IPO candidates in 2020.

Across the region, there were three IPOs in the transport, power and utilities, and real estate sectors that raised proceeds of $294.8 million in Q1-21, marking an annual plunge of 64% compared to Q1-20.

It was expected for Q1-21 to witness an increase in MENA’s IPO activity after an uptick in issuances in Q4-20, when four IPOs and $925 million in proceeds were registered, yet the IPO market had a slow start to 2021.

Saudi Arabia Topping MENA’s IPO Market

Tadawul remained the MENA region’s top listing venue in Q1-21. The first listing was Alkhorayef Water and Power Technologies, which raised $144 million by floating 30% of its shares. The offering was heavily oversubscribed by 1,511% and 6,320% for the retail and the institutional offerings, respectively.

The second IPO was Theeb Rent a Car Company, which offered 30% of its shares to the public and raised $138 million. The Theeb IPO was also heavily oversubscribed, with strong demand leading to an oversubscription of 6,010% for the institutional tranche and 3,385% for the retail offering.

Tadawul’s own IPO also continued to gain traction, as the stock market announced on 7 April its transformation into a holding group structure, dubbed Saudi Tadawul Group, signalling its readiness for the IPO in 2021.

It is currently in the process of selecting advisors for the transaction, with the IPO expected later this year.

In 2020, Tadawul witnessed four listings that had raised proceeds of $1.45 billion, representing 78% of the total amount raised by MENA IPO candidates last year.

It is worth noting that Tadawul and the Securities Depository Centre Company (EDAA) together enhanced the regulations of securities borrowing and lending (SBL) and short selling, following the Capital Market Authority’s (CMA) approval.

“The enhancements to the short selling framework include a provision that total net short positions must not exceed 10% of the free floated securities of the relevant security. Additionally, Tadawul will publish a daily report for total net short positions after the trading session on its website,” according to the report.

Outlook

EY MENA Strategy and Transactions Leader, Matthew Benson, said: “We expect IPO activity to bounce back over the coming months while economic conditions in the region continue to improve, aided by the accelerated vaccine rollouts and the possibility of reaching herd immunity against COVID-19.”

As for the remainder of 2021 and beyond, EY MENA IPO and Transaction Diligence Leader, Gregory Hughes, said: “there are many reasons to be optimistic about the upcoming quarters ahead. A strong IPO pipeline in key MENA markets across sectors, coupled with various government initiatives to deepen the capital markets, particularly in KSA and the UAE, should help bring more IPOs to markets in the region.”

Global Performance

The January-March 2021 period has been the best-performing first quarter in terms of deal number and proceeds over the last 20 years, despite the trend of Q1 being a slower period given the impact of the COVID-19 pandemic.

There were 430 IPOs in Q1-21, compared to 233 in Q1-20, and the proceeds also jumped 271% to $105.6 billion.

EY attributed the increase in global IPO momentum to “the ample liquidity in the financial systems; the accelerated growth of technology and new economy companies propelled by the pandemic; speculative and opportunistic transactions; and platforms that have made retail investing more accessible to the general public and young generations.”