MENA IPO Eye. MENA IPO market remains positive, with companies waiting to IPO at the right time Q3 2014

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1 MENA IPO Eye Q3 214 MENA IPO market remains positive, with companies waiting to IPO at the right time Q3 214 saw limited IPO activity due to the traditionally slow summer period Mayur Pau MENA IPO Leader The MENA IPO Eye is a quarterly publication covering the MENA IPO markets. Through the publication, we intend to highlight the latest developments, market trends and outlook of IPO activity in the region that are valuable insights for those companies looking to float in the future. For feedback, please mayur.pau@ae.ey.com. The IPO activity in the Middle East and North Africa (MENA) region has slowed down in Q3 214, driven by the quiet summer period, which also included the holy month of Ramadan and Eid-ul-Fitr, when there is a reduced appetite to launch new IPO offerings to the market. However, Q3 214 witnessed the largest IPO of 214 to date, Emaar Malls Group raised US$1.6 billion in proceeds on the Dubai Financial Market (DFM) toward the end of the quarter, potentially signaling a shift in how the local markets are perceived by high-quality regional businesses. A further two IPOs closed in the quarter relating to Délice Holding and Zain Bahrain, which raised combined proceeds of US$92.2 million. Capital raised by MENA IPOs increased by over 1 times, while deal volume increased by 5% in Q3 214 compared with Q M9 214 saw 19 closed or listed IPOs by the MENA companies, raising US$4.1 billion. This is an increase of 8% in capital raised and 19% increase in IPO deal volume, compared with M *M9: nine months from January to September. Highlights from the Q2 214 MENA IPO Eye edition Eleven IPOs from the MENA region raised US$1.1 billion, representing 129% increase in terms of value compared with Q Saudi Arabia leads the MENA region with three IPO issues followed by the UAE, Oman and Tunisia with two issues each. The largest issue was from Saudi Arabia s Abdul Mohsen Al Hokair Group, which raised US$22 million in June 214.

2 UAE tops MENA IPO market in terms of capital raised in Q3 214 and M9 214 IPO activity in Q3 214 was limited to a blue chip IPO of Emaar Malls Group, which raised US$1.6 billion on the DFM, and two closed IPOs relating to Délice Holding (Tunisia) and Zain Bahrain (Bahrain) are expected to list in the beginning of Q In addition, the Marka IPO that closed in Q2 214, listed on 25 September 214. The UAE leads the MENA region in M9 214 with total proceeds of US$1.8 billion, followed by Qatar and Oman, which raised capital worth US$95.3 million and US$194.5 million, respectively. MENA IPO activity is spread broadly across sectors during M9 214, with real estate the most active sector in terms of capital raised, claiming two IPOs worth US$1.7 billion, including the region s largest issue relating to Emaar Malls Group in September 214. Company Domicile Sector Amount raised Date of IPO closure Listing date Exchange** (US$ million) Emaar Malls Group UAE 1, September October 214 Dubai FM Délice Holding Tunisia Food and Beverages September October 214 Tunisia SE Zain Bahrain Bahrain Telecoms September 214 October 214 Bahrain SE Total 1,671.2 Sources: Zawya IPO Monitor; Mergermarket; ThomsonOne. ** Exchange: FM financial market, SE stock exchange Current state of play Q3 214 has been relatively slow in terms of IPO volume compared with other quarters due to the summer period. However, the strong fundamentals of the MENA region and improved valuations are likely to drive the IPO volume, with a significant backlog expected to come to market, over the next quarters. Some of the factors driving IPOs in the region are the easing of regulatory requirements, private equity exits in line with higher valuations, government entities sharing wealth with their population and an increased corporate governance focus for family businesses. The IPO of Emaar Malls Group and Marka, which closed earlier this year, were heavily oversubscribed (over 3 times), indicating growing investor confidence and appetite to deploy capital that has been waiting on the sidelines. However, we have seen that there are exceptions to this trend with the IPO of Zain Bahrain being under subscribed and the underwriter having to subscribe to 65.2% of the offering. Plans for regulatory reforms in the larger local markets within MENA, which are likely to ease restrictions on capital raising and provide increased access to foreign investors, have also been announced. Emaar Malls Group was one of the first companies that has capitalized on planned regulatory reforms in the UAE by being exempted from having to float 55% of existing shares, ahead of the new regulations being implemented. The Saudi Arabian stock market has also recently announced regulatory reforms to make it easier for foreign investors to invest on the Tadawul, which is expected to boost the Saudi market and increase liquidity once the changes come into force. This highlights a shift in emphasis of policy-makers in the region to make it more attractive for companies to IPO on local markets rather than seek outbound listings as a matter of default. 2 MENA IPO Eye Q3 214

3 Insights on the largest IPO in YTD 14: Emaar Malls Group (EMG) IPO Purpose The proposed IPO of EMG is a significant strategic step for the parent company Emaar Properties, allowing its shareholders to realize value from the malls business, while continuing to allow EMG to benefit from the development expertise and significant land bank of one of the largest developers globally. Statistics Amount raised US$1.6 billion (AED5.8b) Equity offered 2 billion (volume) of founder s shares or 15% of its equity Price AED2.9 per share Subscription period 14 to 24 September 214 Listing date 2 October 214 Analyst commentary Emaar Properties is rated buy, expects both revenue and profit at the company s malls business to grow at more than 1% in 215 and 216. Taher Safieddine of Shuaa Capital These are high-quality assets from the market leader in a growing market. You would expect some kind of premium to reflect that. The National Business Overall, investors are positive on Emaar, investors are looking at a high valuation. Ali Adou, Portfolio Manager at The National Investor in Abu Dhabi The Emaar Malls Group is looking overpriced at about 3-times earnings at what may be the peak of its business cycle ArabianMoney MENA IPO activity has raised capital amounting to US$4.1 billion at a growth rate of 8% compared with M9 213, with MENA IPO volume up 19%. Global IPO activity has raised a total of US$174.7 billion, a growth of 4% in M9 214 compared with M In Q4 214, the MENA IPO market is expected to remain buoyant with the fundamentals in place for a sustained period of strong and steady IPO activity. With a solid pipeline of IPO-ready businesses across a broad range of geographic markets from multiple sectors, and strong investor confidence, the last quarter of 214 is expected to uptick. 5, , 3, , 1, , , ,59.7 M9 211 M9 212 M9 213 M9 214* Capital raised (US$m) Volume (number of IPOs) MENA IPO activity trends in M9 214 are consistent with global IPO activity. MENA IPO activity (M9 211 M9 214*) Capital raised (US$m) MENA trends consistent with global IPO trends Volume (number of IPOs) *As of 29 September 214. MENA IPO Eye Q

4 MENA IPO activity (Q1 211 Q3 214) 6 1, , Q1 11 Q2 11 Q Q4 11 Q , , Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Capital raised (US$m) , ,14.8 1,671.2 Q1 14 Q2 14 Q3 14* 2 Volume (number of IPOs) Capital raised (US$m) 2, Volume (number of IPOs) Sources: Zawya IPO Monitor, Mergermarket and ThomsonOne. *Updated 3 September Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14* Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Capital raised (US$b) Source: EY KWeb Global IPO Center analysis MENA IPO Eye Q3 214 Q4 12 Quarter Volume Capital Raised (US$b) Global IPO activity (Q1 211 Q3 214) Volume (number of IPOs) *Updated 27 September 214.

5 Key trends impacting MENA IPOs MENA economic growth is expected to pick up in 215 The MENA economies have benefited from the improved global economic environment and the recovery of oil production. According to the International Monetary Fund (IMF), the MENA region is expected to register a GDP growth of 4.5% in 215, compared with 3.2% in 214. The non-oil sector is expected to grow much faster than the oil sector in the regional economies, such as the UAE and Qatar. The MENA oil-exporting countries are expected to lead the GDP growth with 4.6% in 215. However, with the global oil production already high and supply prospects strong, growth in the oil sector will soften. Economic diversification thus becomes very important for these countries to help them moderate the volatility of oil output and reinforce economic growth. Many MENA countries have made significant progress in economic diversification, as reflected in the rising share of non-oil output in the total GDP. The non-oil sector is expected to expand faster in 215, led by the rising growth in the real estate, construction and tourism sectors. MENA GDP growth (%) With a gradual recovery in the global energy demand and new oil and gas developments in the region, the MENA hydrocarbon sector is expected to show a moderate growth MENA oil importers 2.7 Regional stock market riding on increased investor confidence 4.6 The MENA stock markets have continued the positive momentum of last year into MENA oil exporters Gulf Cooperation Council (GCC) f Sources: IMF and EY. Note: f forecast. 214f YTD return (%) % % Dubai FM % Kuwait SE % Muscat SM 4.5. Market cap (US$ billion) Bahrain SE 4.2 MENA Stock market Abu Dhabi SE % Qatar SE % Saudi SE % Egypt SE % Casablanca SE % 8.3 5% Tunis SE Source: Zawya. Note: Data as of 23 September 214. At the end of September 214, the DFM had the highest returns (52%) in comparison with other stock markets in the MENA region. Kuwait SE has been volatile during the year, with a year-to-date (YTD) return of just 1% at the end of September 214. The stock exchanges of Egypt and Qatar have been relatively stable during the period. MENA IPO Eye Q

6 Regional stock market performance YTD 214 (%) Market return (percentage change) 6% 5% 4% 3% 2% 1% % -1% -2% January 214 February 214 March 214 Abu Dhabi SE Qatar SE April 214 May 214 Bahrain SE Saudi SE June 214 July 214 Dubai FM Egypt SE August 214 Kuwait SE Casablanca SE September 214 Muscat SM Tunis SE Source: Zawya and EY analysis. The regional stock markets remain attractive, with an average PE of 14.9 at the end of September 214. The stock exchanges of Kuwait, Saudi Arabia and Qatar had higher PE ratios. The average dividend yield (DY) of regional exchanges at the end of September 214 was 3.7%, with Bahrain SE, Muscat SM and Casablanca SE providing an average DY of more than 5.4%. Regional index return (%) PE DY 5 Bahrain SE Dubai FM Kuwait SE Muscat SM Qatar SE Saudi SE Egypt SE Casablanca SE Source: Zawya. Note: Data as of 23 September 214. MENA IPO Eye Q Abu Dhabi SE Tunis SE 6 1 2

7 Changing regulations increasing the attractiveness of the local markets The number of IPOs by MENA companies is expected to increase considerably over the next year, as the MENA capital markets relax their rules in an attempt to encourage the local companies to consider domestic IPOs. The Saudi SE s recent announcement to open its stock market to direct investment by foreign financial institutions is likely to raise its profile on the international scene. The regulators in the UAE have introduced exemptions, prior to regulatory reforms formally coming into play, which allow companies to decide the minimum free float rather than follow the current 55% requirement. Additionally, they are allowed to sell existing shares rather than issuing new shares. Emaar Malls Group is one of the first firms that has capitalized on the new exemptions to the DFM listing rules and floated close to 15% of its shares in order to raise US$1.6 billion. Given the forth coming changes in regulations, a further potential boost for the UAE stock market is the proposed listing of DAMAC, the luxury property developer, on DFM. DAMAC has global depository receipts (GDRs) currently listed on the London Stock Exchange. Challenges of the MENA IPO market Although the regional IPO market performed well in M9 214, challenges still exist for companies going for public issue, including the ever-changing regulatory environment and the lack of liquidity in the MENA markets, which is expected to improve further going forward, and unrealistic valuation expectations by business owners. Trends and developments in the IPO markets highlights MENA IPOs have been driven by improved economic conditions and investor confidence in the MENA region, particularly in the Arabian Gulf countries, with improved liquidity and higher valuations. As seen in the previous years, Q3 has lower IPO volume compared with other quarters due to the summer season. However, this quarter has witnessed one of the largest IPOs in the form of the Emaar Malls Group. More inbound IPOs are in the pipeline due to regulatory reforms and exemptions, which in turn would build further investor confidence in the region. Challenges include the need for more liquidity in the market and mapping of sellers valuation expectation in the market. MENA IPO Eye Q

8 Broader outlook Region to witness growth in IPO activity MENA IPO activity is expected to surge during 215, with market valuations returning to somewhere near pre-crisis levels. The growing economy and regulatory initiatives are expected to drive investor confidence and bring liquidity to the market. Government spending on infrastructure and diversification of oil-based economies has created more opportunities in the private sector. These continued developments would lead to more companies raising capital from the market. Morgan Stanley Capital International s (MSCI s) upgrade of the UAE and Qatar to emerging market status is expected to continue to bring stability and greater investment in the region. The nascent private equity and venture capital industry in the MENA region has gone through some testing times in the recent years. However, the economic and regulatory reforms may pave the way for easier exits through IPOs for PE or venture capital (VC) funds, as noted in Q Regulator reforms to continue Regional regulators are continuing to focus on measures to increase IPOs, thus leading to a much-needed deepening of the equity market in the region and improved sentiment from global investors. MENA regional authorities have also been streamlining IPO rules, to encourage some of the region s many family controlled firms to list as a way of making business more transparent. More IPO funds to be launched A number of funds based in the MENA region that specialize in IPOs have made impressive returns in recent times. Since valuations are back to an attractive exit level, most of the investments are gradually being restructured and the pressure for monetizing them is growing, causing the IPO pipeline to be quite significant. IPO funds represent the most efficient option for institutional investors that would not have a significant allocation to a public offering due to either high demand or foreign ownership limits. One of the firms hoping to capitalize on improved investor sentiment toward IPOs in MENA is Al-Masah Capital Management, which launched a US$1m IPO fund in April 214. Delta Insurance Company is another firm that plans to launch an IPO mutual fund amounting to EGP1m. Firms eye for IPOs to capitalize positive market sentiments According to Zawya IPO Monitor, over 7 companies from the MENA region have announced plans for going public by December 214. Saudi Arabia is expected to have 22 IPOs, followed by Egypt with 13 and the UAE with 1. Companies in the financial services and real estate sectors dominate the pipeline, with eight and seven IPOs announced respectively. The prominent names in the announced list include the Istikhlaf Bank, Saudi Arabian Mining Company, National Commercial Bank and Ithmar Capital. The state-owned entities are also planning to privatize firms through IPOs. Oman s Electricity Holding Company (EHC) is considering privatization of Muscat Electricity Distribution Company (MEDC), either by way of an IPO or by selling ownership to a strategic partner or a combination of both. Another state-owned entity looking for the IPO route is the cargo unit of Saudi Arabian Airlines (Saudia). Broader outlook highlights IPO activity poised to strengthen in line with the increased government spending on diversification Emerging market upgrade of the UAE and Qatar stock exchanges to improve investor confidence Further regulatory reforms in the UAE and Saudi Arabia to boost investments and listings in the market Many firms have announced plans for IPOs, including privatization by the state-owned firms 8 MENA IPO Eye Q3 214

9 Companies processing or planning public issues in 214 (publicly announced) Country Issuer Sector Bahrain Istikhlaf Bank Khalifa bin Salman Port Transport Bahrain Tourism Company Telecommunications Egypt Atlas for Land Reclamation and Agricultural Processing Agriculture Delta Cement Construction Edita Food Industries Food and beverages Egyptians Abroad Investment & Development Company S.A.E. El Obour Company for Real Estate Investment Etisalat Misr Telecommunications Misr Chemical Industries Industrial manufacturing Raya Contact Center Services Reacap Financial Investments Company S.A.E. Reacap Financial Investments Company S.A.E. Smart Villages Development And Managment Company Univert Food Industries Food and beverages Rooya Group Kuwait Housing Finance Company Hits Telecom Holding Company Telecommunications Investors Group Holding Jordan Arab Center for Pharmaceuticals and Chemicals Health care Arab Jordan Investment Bank PLC Jordan Emirates Insurance Company Middle East Complex for Engineering Electronics and Heavy Consumer goods Industries Salam International Transport & Trading Company Transport Sheba Metal Casting Company Industrial manufacturing Lebanon Patchi Retail Bank Audi Libya Libyan Post Telecommunication and Information Technology Telecommunications Co.* Morocco Total Maroc Oil and gas Oman Alargan Towell Investment Company LLC Barr al Jissah Resort Company Muscat Electricity Distribution Company* Power and utilities Oman Merchant Bank TruckOman LLC Transport Qatar Aljasr Takaful Insurance Company Damaan Islamic Insurance Company MENA IPO Eye Q

10 Country Issuer Sector Saudi Arabia ACWA Power International Power and utilities Al Alamiya for Cooperative Insurance Company Al Rajhi Company for Cooperative Insurance Al Ahlia for Cooperative Insurance Co. Almana General Hospital Hofuf Health care Bishah Agricultural Development Company Agriculture Buruj Cooperative Insurance Company Dr Sulaiman Al Habib Medical Center Health care Emaar the Economic City Murabaha Company Saudi Airlines Cargo Company Transport Saudi Arabian Mining Company Mining and metals Saudi Aramco Total Refining and Petrochemical Company Oil and gas Saudi Company for Hardware Industrial manufacturing Saudi Stock Exchange (Tadawul) Saudi United Cooperative Insurance Company Taajeer Co. For Machinery, Real Estate and Vehicles Trading Tabuk Agricultural Development Company Agriculture Tourism Enterprises Company Leisure and tourism United Cooperative Assurance WAFA Insurance Weqaya Takaful Insurance and Reinsurance Company Saudi Cable Company Industrial manufacturing Sudan Kenana Sugar Company Food and beverages Tunisia Union Internationale de Banques Transport UAE Able Logistics Group Transport AlWaseet International Media Aster DM Healthcare Health care Burooj Properties LLC Commercial Bank International P.S.C. Gulf Capital PJSC Ithmar Capital Metito Overseas Limited Power and utilities Shelf Drilling Oil and gas Tasweek Real Estate Development and Marketing Source: Zawya IPO Monitor. *State-owned entities. Mayur Pau MENA IPO Leader The combination of attractive valuations and solid aftermarket performance means The growing number of planned IPOs indicates that financial sponsors are that investor confidence actively pushing companies to is list. on The the companies rise. The expected improved to economy list in the region and range regulatory from subsidiaries initiatives of are family expected businesses to bring to large liquidity established to the market. companies. These Sectors continued that are developments likely to show strong will encourage IPO appetite more are those with companies strong demographics to raise capital such as retail, consumer from the market. products, and healthcare. 1 MENA IPO Eye Q3 214

11 Key events to look out for Name of the event Date Theme Special session: Going public US, Palm Springs 12 November 214 Specifically designed for CEOs of IPO-bound companies; will provide the latest updates on the IPO and M&A markets and strategies in preparation for an IPO MENA IPO Retreat Dubai (by invitation only) March 215 Strategies for companies going public or raising capital through IPOs; discussions and guidance from a dedicated panel of industry experts and professionals Contacts Mayur Pau MENA IPO Leader mayur.pau@ae.ey.com Darrell Traynor Executive Director Transaction Advisory Services darrell.traynor@ae.ey.com Shahzad Shaikh Manager Transaction Advisory Services shahzad.shaikh@ae.ey.com MENA IPO Eye Q

12 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. The MENA practice of EY has been operating in the region since For over 9 years, we have grown to over 5, people united across 2 offices and 15 countries, sharing the same values and an unwavering commitment to quality. As an organization, we continue to develop outstanding leaders who deliver exceptional services to our clients and who contribute to our communities. We are proud of our accomplishments over the years, reaffirming our position as the largest and most established professional services organization in the region. 214 EYGM Limited. All Rights Reserved. EYG no. CY818 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com/mena