JEDDAH, 10 April 2006 — The liquidity of Gulf Cooperation Council (GCC) economies has improved substantially in the last two years and the capital markets have witnessed increased growth, in terms of the number of listed companies as well as market capitalization. The capital markets enjoyed improved primary market activity, which increased the number of companies listed on the GCC stock exchanges from 492 at the end of 2004 to 579 in 2005, according to a report by the Kuwait-based Global Investment House (Global).
The companies are witnessing good earnings momentum, which is likely to be sustained on the back of buoyant economy and tremendous business opportunities in the region. The year 2005 in particular was good for the GCC region as the countries witnessed strong fiscal positions due to high oil prices.
The primary markets evoked special investors’ attention as the private businesses and the governments of the region tapped the primary market to unlock the value of their investments. This also improved the performance of the secondary markets in terms of increasing the trading activity especially by the retail investors.
Out of all GCC markets, the UAE bourses witnessed the most oversubscriptions, led by Aabar Petroleum which was oversubscribed 800 times. Aldar Properties was also oversubscribed by 448 times and generated $103 billion in terms of funds committed. Arab International Logistics was oversubscribed by 80 times and according to the reports, the public share sale of Emirates Integrated Telecommunications Company (EITC), the Emirates’ second telecoms operator, was oversubscribed by 167 times. In order to smoothen the functioning of the capital markets, the GCC region is witnessing a change in the regulatory framework with the supervisory institutions introducing new capital market laws to improve the investment climate in their respective countries.
However, in a major move, the UAE authorities are contemplating to fix a ceiling on the maximum allotment in initial public offering (IPO) subscriptions. With the new rule that limits the maximum allotment expected to come into force, small and medium investors stand to gain.
Also, the IPO is required to be offered to the investor at par in Saudi Arabia & UAE and a minimum of 55 percent of paid in capital should be offered at the IPO in the UAE. The regulators have also directed the newly established firms that have completed their IPOs to refund surplus within two weeks which will help the markets in getting back the liquidity. Besides the Saudi Arabian and Oman capital market regulators have tried to evoke interest of retail investor by introducing share split to make markets more liquid.
IPO activity in the Middle East escalated to new heights in 2005, with $6 billion being raised by investors, a staggering 100 per cent increase over the previous year.
The booming IPO market was well supported by an improvement in corporate governance and disclosure practices for companies already listed on the GCC bourses.
Omar M. El-Quqa, executive vice president, Global, who was a keynote speaker at the recent IPO Summit in Dubai commented: “The establishment of independent regulatory authorities in various countries was an important step toward improving corporate governance and transparency across the region”.
“The formation of the Securities and Commodities Authority in the UAE, the Capital Market Authority (CMA) in Saudi Arabia which was established in 2003 and the Capital Market Authority in Oman formed in 1998, have certainly under-pinned GCC investor confidence”, he added.
IPO activity is also supported to a great extent by the improvement in liquidity in the stock markets where market capitalization, which was around $120 billion in 2000, has catapulted to breach the $1 trillion mark in 2005, a growth of over 800 percent within a period of just five years.
UAE companies topped in 2005 by raising nearly $1.9 billion, followed by Saudi Arabian companies by raising about $1.7 billion.
According to Riyad Bank’s Saudi Economic Review, market capitalization of the Saudi stock market was SR280 billion in 2003 and SR590 billion in 2003. Latest Tadawul data show total market capitalization was SR2,423 billion in 2005. In a three-year long bull run since 2002, the Saudi stock market has created over SR2.1 trillion in new wealth for the Kingdom’s citizens.
