Middle East gears up for another strong year of diversification: IFR

Zawya

27-01-2025

Middle Eastern equity capital markets have been quick to reopen ahead of what is expected to be another busy year across the region.
Last week saw the first Tadawul listing launch, continuing 2024's theme of growth-focused stocks in the form of online brokerage platform Derayah Financial while the emerging Omani market saw an early launch with Asyad Shipping.
As in previous years, Saudi Arabia is expected to contribute the largest deal count, with bankers expecting themes around consumer, healthcare and tech to continue to be important.
One regional banker said they were on four to five Tadawul deals in H1 and three or four UAE deals across the whole year while a banker at a global firm predicted up to 10 Saudi deals.
The regional banker also said they had visibility on a second Omani deal though this was unlikely before Q4. Like Asyad, the second deal will be away from state oil firm OQ whose spin-offs have dominated recent deal flow but still within the government portfolio.
A banker focused on Saudi Arabia said they expect two or three deals away from them to launch on Tadawul before Ramadan begins on February 28 while after Eid al-Fitr at the end of March they would bring two, including a retail-focused business awaiting CMA approval.
CMA approval has already been given for Arabian Company for Agriculture and Industrial Investment, United Carton Industries and Umm Al Qura for Development and Construction Company which will need to launch in the first half.
As in 2024, healthcare is expected to continue to be a hot sector with the Saudi banker's pipeline for H2 including a clinic operator with exposure to elective procedures such as cosmetic surgery and dentistry, which are experiencing strong demand.
In keeping with last year, most deals are expected to be US$300m–$500m-equivalent.
'Saudi Arabia remains the most constructive market,' said Ali Khalpey, head of ECM at EFG Hermes. 'There is strong momentum around the private sector, which continues to grow. Liquidity remains robust and a number [of deals] have done really well in the last year.'
Towards the end of 2024 some issuers also experimented with primary legs as part of their listings, thus far a relatively uncommon feature in Saudi Arabia.
This was employed on online beauty company Nice One, which became Tadawul's first tech unicorn, and hospital operator Almoosa Health. They received strong traction from investors and remain up more than 70% and 21% on issue price, respectively.
'The Saudi market is quite mature and people are able to see a growth profile and back it,' said Khalpey. 'Healthcare is an area of focus as is education and housing. People are relocating to Saudi Arabia and there is significant demand for all three sectors.'
An early Ramadan means the first crop of IPOs have a relatively tight window and will likely need to launch by around mid-February, though bankers said investors are increasingly comfortable with operating throughout the first half of the holy month. Even so, activity will be brisker in the second quarter.
UAE remains robust
In common with Saudi Arabia, the UAE saw a growing private sector and growth-slanted pipeline in 2024, however these deals showed more mixed performance with many trading down on debut.
An emerging market banker said sentiment still remains robust but predicted investors would need to show more restraint and not assume that private sector deals would behave in the same way as government-backed offers.
The banker also pointed to a recovery in some private sector stocks over time such as Spinneys, which priced at Dh1.53 in May and are now at Dh1.70 after trading either side of issue through the year.
'The UAE will be more of a mix of government and private sector and investors will be a lot more discerning,' said Khalpey. 'There are a number of high-quality assets which are government-backed.'
A number of notable state-backed names are highly anticipated, including Abu Dhabi carrier Etihad Airways and commercial and residential REITs from Dubai Holding.
Etihad remains likely to launch in Q1, depending on regulatory approval. Early-look work is ongoing and a banker involved said feedback is very positive.
Citigroup, First Abu Dhabi Bank and HSBC are running the deal, with Rothschild advising.
Dubai Holding's REITs are said to have been pushed back from an initial expectation of early H1.