MENA IPO Eye Q1 2015
Q1 2015 Q1 2015 saw limited IPO activity, with the majority of the companies continuing to be cautious given the uncertainty over oil prices, which started to stabilize in the quarter. 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, providing valuable insights for companies looking to float in the future. For feedback, please email mayur.pau@ae.ey.com. Inside Q1 2015 2 Key trends impacting MENA IPOs 4 Q2 2015 outlook 7 Key events to look out for 11 Contacts 11 MENA IPO activity declined in Q1 2015 after an active Q4 2014, with only two IPOs across the region collectively raising a total capital of US$255.7 million. Capital raised by MENA firms through IPOs decreased by 80%, and the number of IPOs decreased by three in Q1 2015 compared with Q1 2014. Similarly, capital raised by MENA firms through IPOs decreased by 97%, and the number of IPOs decreased by six in Q1 2015 compared with Q4 2014. Both the IPOs that closed in Q1 2015 were companies based in Egypt, with Orascom Construction opting for a dual listing on the Egyptian Stock Exchange (SE) and NASDAQ Dubai. Two IPOs in Q1 2015 Company Domicile Sector Amount raised (US$ million) Orascom Construction Limited Orascom Hotels and Development Listing date Exchange Egypt Construction 185.0 1 March 2015 Egypt SE and NASDAQ Dubai Egypt Leisure and 70.7 1 January 2015 Egypt SE tourism Total 255.7 Sources: Zawya IPO Monitor, Mergermarket and ThomsonOne. Egypt on the slow road to recovery The ongoing economic recovery and increasing stability in Egypt have encouraged capital market activity. According to the International Monetary Fund (IMF), Egypt s gross domestic product (GDP) growth rate is expected to reach 4% by 2015, compared with 2% in 2013. This is supported by government initiatives to stimulate the economy, including a cut in energy subsidies last year, an improved tax regime and new infrastructure projects (Suez Canal development project). Improving relationships with other countries in the region have resulted in several Gulf countries collectively pledging a total of US$12 billion for the economic recovery and growth plans of the country. These factors have combined with more simplified listing procedures and amended laws, to increase capital market activity on the Egyptian SE. The IPOs of Orascom Construction Limited and Orascom Hotels and Development were oversubscribed by 5.1 times and 3.8 times, respectively, and, according to Zawya, there are around 10 more Egyptian companies planning to raise money through IPOs in 2015. Oil prices recovering, but uncertainty remains Brent crude prices have partially recovered in Q1 2015 after a dramatic fall in global oil prices during 2014 and the beginning of 2015, when prices reached a low of US$45.1 on 13 January 2015. Since then, the declining supply from US producers and increased demand from Asian and Latin American countries have led to Brent crude prices recovering to US$60 on 2 March 2015 and, currently, they around the US$55 per barrel mark. Continued uncertainty over the future of oil prices in Q1 2015 has resulted in several companies deferring their IPO plans to Q2 2015 and Q3 2015, and it is the key driver for the lack of IPO activity in Q1 2015. 2 MENA IPO Eye Q1 2015
MENA IPO activity (Q1 2011 Q1 2015*) Capital raised (US$ million) 8,000 6,000 4,000 2,000 0 11 10 9 8 6 6 5 5 4 4 3 3 3 2 2 1 24.1 374.8 218.9 226.1 82.8 1,297.1 252.3 339.8 1,621.0 482.6 150.7 817.7 1,283.8 1,104.8 1,671.2 7,426.3 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 Q4 14 2 255.7 Q1 15* 12 10 8 6 4 2 0 Volume (number of IPOs) Capital raised (US$ million) Volume Source: Zawya. Note: *updated 22 March 2015. Insights on the two MENA IPOs of Q1 2015 Particulars Orascom Construction Limited Orascom Hotels and Development Purpose To separate the company from the Orascom Group and establish it as the parent company of the construction business. In turn, this will allow each Orascom business to participate actively in consolidation opportunities, and value-accretive partnerships and joint ventures in their respective markets. The IPO offer comes as part of the Orascom Development Holding Group s strategy to generate value from its subsidiary operations. The proceeds from the IPO will be re-injected to support ongoing operations and deleverage its balance sheet. Statistics Amount raised US$185 million (EGP1.4 billion) on Egypt SE Amount raised US$70.7 million (EGP506.1m) Dual listed in NASDAQ Dubai for trading only Equity offered 11% stake: a tranche of 2,360,830 new shares (2% of share capital) allocated to Egyptian qualified institutional buyers or professional high-net-worth individuals and a second tranche of 10,623,735 new shares (9% of share capital) allocated to qualified institutional investors. Price EGP108.71 per share Subscription period 1 to 4 March 2015 Equity offered 15% stake: a tranche of 22,196,233 shares (10% of share capital) allocated to qualified investors and a tranche of 11,098,116 shares (5% of share capital) allocated to the general public. Price EGP15.2 per share Subscription period 1 to 4 January 2015 Listing date 6 January 2015 Listing date 11 March 2015 Source: Zawya. Q1 2015 highlights Q1 2015 saw a decrease in IPO activity, compared with Q1 2014 and Q4 2014, with only two IPOs across the region, which collectively raised a total capital of US$255.7 million. Both the IPOs closed in Q1 2015 were companies based in Egypt, with Orascom Construction opting for a dual listing on the Egyptian SE and NASDAQ Dubai. Highlights from the Q4 2014 MENA IPO Eye edition Q4 2014 saw a surge in IPO activity, raising a total of US$7.4 billion and was nine times higher than Q4 2013. This was based on strong market fundamentals and investor confidence. The National Commercial Bank (NCB), a majority-owned Saudi Arabian bank, was the largest listing in MENA history and the second largest globally in 2014, with a capital of US$6.0 billion raised, and was designed to redistribute wealth to Saudi Arabia s population. Two more greenfield IPOs were launched in Q4 2014 with Amanat and Dubai Parks and Resorts, but with less success than Marka, against a backdrop of volatility, driven by declining oil prices. MENA IPO Eye Q1 2015 3
Key trends impacting MENA IPOs Macroeconomic fundamentals MENA GDP growth (%) Crude oil prices Government expenditure (US$ billion) 4.5 MENA 3.8 2.6 4.5 GCC 4.5 4.4 4.5 MENA oil exporters 3.9 2.5 4.2 MENA oil importers 3.7 2.6 Oil prices (US$ per barrel) 140 120 100 80 60 40 20 0 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014 Aug 2014 Sep 2014 Oct 2014 Nov 2014 Dec 2014 Jan 2015 Feb 2015 Mar 2015 OPEC price Europe Brent crude US$ billion 1,200 1,000 800 600 1079.2 1092.2 1130.5 400 200 560.8 569.9 586.7 0 2015f 2016f 2017f Year MENA government expenditure GCC government expenditure 0 1 2 3 4 5 2016f 2015f 2014a Source: IMF, January 2015. Source: OPEC and Energy Information Association (EIA). Source: Business Monitor International (BMI). According to the IMF, the MENA region is still expected to register a GDP growth of 3.8% by 2015, compared with 2.6% in 2014. Diversification and economic reforms have benefited the MENA economies by enabling the creation of more private sector opportunities. Brent crude price appears to have bottomed out at US$45.1 on 13 January 2015 and recovered to US$52 as on 23 March 2015. According to the Secretary General of the Organization of the Petroleum Exporting Countries (OPEC), Abdulla al-badri, Oil prices have reached the bottom and will see some rebound very soon. There is no need for the OPEC to reverse its policy of allowing the market to correct itself without cutting output. In Q1 2015, government expenditure in MENA for 2015 is forecast to total US$1,078 billion and is a downward revision, compared with US$1,160 billion initially forecast in Q4 2014. Volatile oil prices have resulted in adjustments to government spending plans; however, MENA regional governments plan to use the huge financial reserves, if required, to meet domestic spending commitments and support diversification initiatives. 4 MENA IPO Eye Q1 2015
Equity market trends MENA PE and DY PE 4.0% 4.6% 3.0% 3.7% 5.2% DY 4.3% 3.1% 2.5% 2.8% 3.3% 10.1x 10.8x 10.7x 15.3x 10.3x 13.4x 16.3x 12.6x 16.5x 13.6x MENA stock market returns 2014 Stock market Market cap (US$ billion) Year-to-date (YTD) return to 22 March 2015 (%) Saudi SE 536.5 12% Qatar SE 171.8 6% Abu Dhabi SE 120.8 4% Kuwait SE 97.3 2% Dubai FM 91.4 9% Egypt SE 65.9 4% Bahrain SE 53.4 1% Casablanca SE 52.1 9% Muscat SM 23.8 2% Tunis SE 9.2 4% Source: Zawya. Note: as of 22 March 2015. 0 5 10 15 20 Abu Dhabi SE Bahrain SE Dubai FM Kuwait SE Muscat SM Qatar SE Saudi SE Egypt SE Casablanca SE Tunis SE Sources: Zawya. Note: as of 22 March 2015. The SEs of Dubai, Qatar, Abu Dhabi, Kuwait and Muscat have generated negative YTD returns in 2015, as stock markets continue to remain volatile due to oil price fluctuations. However, with oil prices starting to stabilize, some of the Gulf SEs have started to rally with the Saudi SE (Tadawul); in particular, achieving the highest YTD return (12%) as of March 2015. Moreover, the regional stock markets remain attractive, with an average price-to-earnings (PE) ratio of 13x as of March 2015. The average dividend yield (DY) of regional SEs at the end of March 2015 was 3.6%. MENA IPO Eye Q1 2015 5
Regional stock market performance YTD 2015 (%) 20.00% 15.00% Market return (% change) 10.00% 5.00% 0.00% 5.00% 10.00% 15.00% 1 Jan 15 8 Jan 15 15 Jan 15 22 Jan 15 29 Jan 15 5 Feb 15 12 Feb 15 19 Feb 15 26 Feb 15 5 Mar 15 12 Mar 15 19 Mar 15 Source: Zawya. Note: as of 22 March 2015. Abu Dhabi SE Dubai FM Kuwait SE Qatar SE Saudi SE MENA IPO activity declined in line with global IPO trends Global IPO activity witnessed a decline of 19% in capital raised, totaling US$38.2 billion in Q1 2015, compared with US$47.2 billion in Q1 2014. When compared with Q4 2014, there was also a substantial decline of 45% in capital raised in Q1 2015, compared with the capital of US$69.3 billion raised in Q4 2014. MENA IPO activity reflected the performance of global IPO markets, as capital raised declined by 80% in Q1 2015, compared with Q1 2014. Only two IPOs took place in Q1 2015, amounting to a total of US$255.7 million capital raised, compared with five IPOs, raising US$1.28 billion in Q1 2014. Global IPO activity (Q1 2011 Q1 2015*) 80 600 Capital raised (US$ billion) 60 40 20 0 384 367 306 325 335 293 260 262 277 243 201 203 192 205 202 163 252 46.9 65.4 28.7 29.2 18.0 43.8 29.6 37.2 24.4 46.3 25.6 74.9 47.2 72.7 67.4 72.0 38.2 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 Q4 14 Q1 15* 400 200 0 Volume (number of IPOs) Capital raised (US$ billion) Volume (number of IPOs) Source: EY. Note: *updated 17 March 2015. 6 MENA IPO Eye Q1 2015
Q2 2015 outlook Oil prices expected to stabilize, but uncertainty remains The demand for crude oil is showing signs of improvement in Asia, Latin America and the USA. It is expected to grow stronger in the second quarter of 2015 as the global economy picks up, helping to absorb excess crude supply in the market and thus enabling prices to stabilize. According to Reuters analyst survey, Oil prices should stabilize in the second half of this year and rise in 2016 and 2017, as consumers respond to a period of much cheaper fuel. The prices would average US$59.20 a barrel in 2015. Growth in foreign investments Regional markets, particularly Saudi Arabia and Egypt, are encouraging increase in capital inflow from foreign investors by proposing and implementing further regulatory reforms. According to Reuters, the second quarter of 2015 is expected to see the opening of the Saudi SE to foreign direct investments, thus allowing foreign investors to invest in Saudi stocks. This is currently limited to around 1.2% of the total market capitalization, but is expected to be increased to 20% under draft rules. Against this backdrop, the MENA IPO market is still expected to be cautious, given the recent volatility levels in oil prices and the MENA capital markets. Regional companies are expected to wait and watch the markets closely for the oil price to settle down before launching new IPOs in Q2 2015 and Q3 2015. Recent regional events; including Saudi-led military intervention in Yemen and the proposed agreement between Iran and the US around Iran s nuclear program and crude oil embargoes, may have an impact on oil prices and regional stability going forward. Firms preparing for an IPO in 2015 According to Zawya IPO Monitor, around 30 companies from the MENA region have announced plans to issue IPOs in 2015. There are around 50 more companies planning to go public in the period from 2016 to 2018, with the UAE expected to have the most number of IPOs in this period. Some of the prominent names expected to be listed in the second quarter of 2015 are Edita Food Industries (Egypt), TruckOman (Oman), Emaar Hospitality Group LLC (UAE), Emaar Misr for Development (Egypt), Massar Solutions (UAE) and Middle East Paper Company (Saudi Arabia). Broader outlook highlights Oil prices have started stabilizing owing to growing demand; thus, companies are expected to raise money, as the market fundamentals and valuations improve. However, recent events including the Saudi-led military intervention in Yemen and the potential lifting of embargoes on Iran oil may increase the risk of volatility in oil prices going forward. MENA markets are eagerly anticipating the opening of the Saudi SE to increased foreign direct investment in Q2 2015. Several IPOs are planned in Q2 2015 and include companies from Egypt, the UAE, Saudi Arabia and Oman, in particular. MENA IPO Eye Q1 2015 7
Companies listed from Q2 2014 to Q1 2015 Date (quarter)* Issuer Size of offering Sector (US$ million) Exchange Q1 2015 4 March Orascom Construction Ltd. 185.00 Construction Egypt SE and NASDAQ Dubai Q1 2015 4 January Orascom Hotels and Development 70.68 Leisure and tourism Egypt SE Q4 2014 12 December Cerealis 5.34 Food and beverages Tunis SE Q4 2014 3 December Résidences Dar Saada SA 127.82 Casablanca SE Q4 2014 30 November Dubai Parks and Resorts PJSC 695.35 Leisure and tourism Dubai FM Q4 2014 17 November Electrical Industries Company 194.30 Saudi SE Q4 2014 5 November RAK Petroleum Public Company Limited 2.91 Oil and gas Oslo SE (Norway) Q4 2014 4 November Amanat Holdings PJSC 381.84 Health care Dubai FM Q4 2014 2 November NCB 5,998.08 Saudi SE Q4 2014 15 October Al Maha Ceramics Company SAOC 20.62 Muscat SM Q3 2014 26 September Emaar Malls Group 1,579.00 Dubai FM Q3 2014 30 September Délice Holding 67.96 Food and beverages Tunis SE Q3 2014 30 September Zain Bahrain 24.19 Telecommunications Bahrain SE Q2 2014 3 June Abdul Mohsen Al Hokair Group 219.98 Leisure and tourism Saudi SE Q2 2014 17 June Al Hammadi Company for Development and Investment 167.97 Health care Saudi SE Q2 2014 13 May Arabian Cement Company Egypt 109.43 Egypt SE Q2 2014 9 June Al Suwadi Power Company SAOG 99.38 Power and utilities Muscat SM Q2 2014 9 June Al Batinah Power Company SAOG 95.11 Power and utilities Muscat SM Q2 2014 24 April Marka PJSC 77.12 Retail Dubai FM Q2 2014 5 May Umm Al-Qura Cement Company 73.33 Saudi SE Q2 2014 30 May Lesieur Cristal SA 70.61 Food and beverages Casablanca SE Q2 2014 16 May Tawasol Group Holding 12.40 Construction Tunis SE Q2 2014 5 June Maghreb International Publicité 4.43 Services Tunis SE Q2 2014 3 April Emirates REIT (CEIC) Ltd 175.00 NASDAQ Dubai Source: Zawya. *Date of IPO closing. 8 MENA IPO Eye Q1 2015
Companies planning or in process for public issue in 2015 18 Country Issuer Sector UAE Massar Solutions PJSC* Mawarid Finance PJSC Tasweek Real Estate Development and Marketing Al Bayader International Habtoor Leighton Group** Construction Al Qudra Holding PJSC* Alpha Tours LLC* Leisure and tourism Future Pipe Industries Group Limited* Kalyan Jewellers** Retail Virgin Mobile Middle East & Africa (VMMEA)** Telecommunications Arabtec Construction LLC Construction Danube Building Materials FZCO Khidmah LLC Arqaam Capital Limited Emaar Hospitality Group LLC Leisure and tourism Al Habtoor Group LLC* Construction Daman Investments PSC* Al Habtoor Motors LLC* Al Waseet International FZ LLC* Media Aster DM Healthcare* Health care Burooj Properties LLC* Gulf Capital Pvt. JSC* Ithmar Capital* Metito (Overseas) Limited* Power and utilities Rotana Hotel Management Corporation PJSC* Leisure and tourism Shelf Drilling* Oil and gas Saudi Arabia Middle East Paper Company Saudi Arabia Saudi Airlines Cargo Co LLC Saudi Aramco Total Refining and Petrochemical Company Oil and gas Saudi Ground Services Company Nas Holding* Al Aqeeq Real Estate Development Company* Riyadh Cables Group of Companies** Arab Paper Manufacturing Company Petromin Corporation** Oil and gas ACWA Power International* Power and utilities Al Sawani Food and Industrial Supply Company* Retail Al-Ittefaq Steel Products Co.* Almana General Hospital Hofuf* Health care Dr Sulaiman Al Habib Medical Center* Health care Murabaha Company* Saudi Company for Hardware* Saudi SE (Tadawul)* Taajeer Co. For Machinery, Real Estate and Vehicles Trading* MENA IPO Eye Q1 2015 9
Country Issuer Sector Qatar Barwa Bank Q.S.C. QIC International L.L.C. Qatar Airways* Qatar Media Services W.L.L.** Al-Sulaiman Holding Aljasr Takaful Insurance Company* Damaan Islamic Insurance Company* Services Conglomerates Kuwait Mezzan Holding Company Food and beverages Housing Finance Company K.S.C.P. Oman Sama Telecommunications Telecommunications Connect Arabia Al Khonji Real Estate & Development LLC (Aqar) Jindal Shadeed Iron & Steel Co. LLC Kunooz Oman Holding Oman Reinsurance Company S.A.O.C TruckOman LLC Alargan Towell Investment Company LLC* Barr al Jissah Resort Company* Muscat Electricity Distribution Company SAOC* Oman Merchant Bank* Telecommunications Mining and metals Conglomerates Power and utilities Bahrain Istikhlaf Bank Unknown sector Khalifa bin Salman Port* Lebanon Middle East Airlines Patchi* Egypt Raya Contact Center Services Smart Villages Development And Management Company Wadi Group Arabtec Egypt for Construction Al Ahly Sporting Club** Food Industries Holding Company Emaar Misr for Development S.A.E. Edita Food Industries Integrated Diagnostics Holdings PLC Delta Cement* Etisalat Misr S.A.E.* Food and beverages Agriculture Construction Education Food and beverages Food and beverages Health care Construction Telecommunications Morocco Marsa Maroc Oil and gas Source: Zawya. *delayed IPO **rumored IPO. 10 MENA IPO Eye Q1 2015
Key events to look out for Name of the event Date Theme Middle Eastern M&A and Private Equity Forum 2014 (Ritz Carlton, DIFC Dubai) Euromoney Saudi Arabia Conference Opportunities and Capital Markets (Al Faisaliah Hotel, Riyadh, Saudi Arabia) MENA IPO Retreat Dubai (by invitation only) 4 May 2015 5 6 May 2015 TBC Mergermarket s Middle Eastern M&A Forum will provide an in-depth review of the deal activity in the region and consider future investment trends for dealmakers in the Middle East over the next 12 months. The Euromoney Saudi Arabia Conference is the biggest and the best financial event in the Kingdom, and it brings together Saudi Arabia s policy-makers, financiers, corporate CEOs and international investors. The MENA IPO Retreat will explore strategies for companies going public or raising capital from IPOs through discussions and guidance from a dedicated panel of industry experts and professionals. Contacts Mayur Pau MENA IPO Leader mayur.pau@ae.ey.com +971 4312 9446 Darrell Traynor Executive Director Transaction Advisory Services darrell.traynor@ae.ey.com +971 2417 4571 Shahzad Shaikh Manager Transaction Advisory Services shahzad.shaikh@ae.ey.com +971 4701 0858 MENA IPO Eye Q1 2015 11
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