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 Q MENA IPO market remains positive, with companies waiting to IPO at the right time Q 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 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 2014, 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, Q witnessed the largest IPO of 2014 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 10 times, while deal volume increased by 50% in Q compared with Q M saw 19 closed or listed IPOs by the MENA companies, raising US$4.1 billion. This is an increase of 80% in capital raised and 19% increase in IPO deal volume, compared with M *M9: nine months from January to September. Highlights from the Q 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$220 million in June 2014.

2 UAE tops MENA IPO market in terms of capital raised in Q and M IPO activity in Q 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 2014, listed on 25 September The UAE leads the MENA region in M with total proceeds of US$1.8 billion, followed by Qatar and Oman, which raised capital worth US$905.3 million and US$194.5 million, respectively. MENA IPO activity is spread broadly across sectors during M9 2014, with real estate the most active sector in terms of capital raised, claiming two IPOs worth US$1.7 billion, including the region s largest issue relating to Emaar Malls Group in September Company Domicile Sector Amount raised (US$ million) Date of IPO closure Listing date Exchange** Emaar Malls Group UAE 1, September October 2014 Dubai FM Délice Holding Tunisia Food and Beverages September October 2014 Tunisia SE Zain Bahrain Bahrain Telecoms September 2014 October 2014 Bahrain SE Total 1,671.2 Sources: Zawya IPO Monitor; Mergermarket; ThomsonOne. Current state of play Q 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 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 30 times), indicating 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. capitalized on planned regulatory reforms in the UAE by being 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 2014

3 Insights on the largest IPO in YTD 14: Emaar Malls Group (EMG) IPO Purpose Statistics Analyst commentary developers globally. 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 2014 Listing date 2 October 2014 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 30-times earnings at what may be the peak of its business cycle ArabianMoney MENA trends consistent with global IPO trends MENA IPO activity trends in M are consistent with global IPO activity. MENA IPO activity has raised capital amounting to US$4.1 billion at a growth rate of 80% compared with M9 2013, with MENA IPO volume up 19%. Global IPO activity has raised a total of US$174.7 billion, a growth of 40% in M compared with M In Q4 2014, the MENA IPO market is expected to remain buoyant with the fundamentals in place for a sustained period of strong and steady IPO activity. With a solid pipeline of IPO-ready businesses across a broad range of geographic markets from multiple is expected to uptick. MENA IPO activity (M M9 2014*) Capital raised (US$m) 5, , , ,000 1, , , , M M M M9 2014* 0 Capital raised (US$m) Volume (number of IPOs) *As of 29 September Volume (number of IPOs) MENA IPO Eye Q

4 MENA IPO activity (Q Q3 2014) 2,000 Capital raised (US$m) 1, , , , , , , Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14* Volume (number of IPOs) Capital raised (US$m) Volume (number of IPOs) Sources: Zawya IPO Monitor, Mergermarket and ThomsonOne. *Updated 30 September Global IPO activity (Q Q3 2014) Capital Raised (US$b) Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14* Quarter Capital raised (US$b) Volume (number of IPOs) Source: EY KWeb Global IPO Center analysis. *Updated 27 September Volume 4 MENA IPO Eye Q3 2014

5 Key trends impacting MENA IPOs MENA economic growth is expected to pick up in 2015 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 2015, compared with 3.2% in The non-oil sector is expected to grow much faster than the oil sector in the regional economies, such as the UAE and Qatar. MENA GDP growth (%) The MENA oil-exporting countries are expected to lead the GDP growth with 4.6% in However, with the global oil production already high and supply prospects strong, growth in the oil sector for these countries to help them moderate the volatility of oil output and reinforce economic growth. Many MENA countries have made rising share of non-oil output in the total GDP. The non-oil sector is expected to expand faster in 2015, led by the rising growth in the real estate, construction and tourism sectors. MENA oil importers 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 exporters Gulf Cooperation Council (GCC) MENA Sources: IMF and EY. Note: f forecast f 2014f 2013 The MENA stock markets have continued the positive momentum of last year into Stock market Market cap (US$ billion) YTD return (%) Abu Dhabi SE % Bahrain SE % Dubai FM % Kuwait SE % Muscat SM % Qatar SE % Saudi SE % Egypt SE % Casablanca SE % Tunis SE 8.3 5% Source: Zawya. Note: Data as of 23 September At the end of September 2014, 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 The stock exchanges of Egypt and Qatar have been relatively stable during the period. MENA IPO Eye Q

6 Regional stock market performance YTD 2014 (%) Market return (percentage change) 60% 50% 40% 30% 20% 10% 0% -10% -20% January 2014 February 2014 March 2014 April 2014 May 2014 June 2014 July 2014 August 2014 September 2014 Abu Dhabi SE Bahrain SE Dubai FM Kuwait SE Muscat SM Qatar SE Saudi SE Egypt SE Casablanca SE 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 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 2014 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 Abu Dhabi SE Bahrain SE Dubai FM Kuwait SE Muscat SM Qatar SE Saudi SE Egypt SE Casablanca SE Tunis SE Source: Zawya. Note: Data as of 23 September MENA IPO Eye Q3 2014

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 The regulators in the UAE have introduced exemptions, prior to regulatory reforms formally coming into play, which allow the current 55% requirement. Additionally, they are allowed to sell existing shares rather than issuing new shares. 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 2014, 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 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 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 2015, with market valuations returning to somewhere near pre-crisis levels. The growing economy and regulatory initiatives are expected 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 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 due to either high demand or foreign ownership limits. One of the IPOs in MENA is Al-Masah Capital Management, which launched a US$100m IPO fund in April Delta Insurance Company is EGP100m. Firms eye for IPOs to capitalize positive market sentiments According to Zawya IPO Monitor, over 70 companies from the MENA region have announced plans for going public by December Saudi Arabia is expected to have 22 IPOs, followed 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. 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 Further regulatory reforms in the UAE and Saudi Arabia to boost investments and listings in the market 8 MENA IPO Eye Q3 2014

9 Companies processing or planning public issues in 2014 (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 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 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. 10 MENA IPO Eye Q3 2014

11 Key events to look out for Name of the event Date Theme Special session: Going public US, Palm Springs 12 November 2014 MENA IPO Retreat Dubai (by invitation only) March 2015 will provide the latest updates on the IPO and M&A markets and strategies in preparation for an IPO 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 90 years, we have grown to over 5,000 people united across 20 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 EYGM Limited. All Rights Reserved. EYG no. CY0818 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