gcc capital markets watch q2 2018 - pwc · saudi arabia (ksa). there remains a sense of cautious...

GCC Capital Markets Watch Q2 2018

USD 463mraised from IPOs in Q2 2018across KSA and Oman (Q12018: USD 430m).

5 IPOsin Q2 2018 across GCC, including 4 REIT IPOs in KSA.

USD 23bnof funds raised by the top two sovereign issuers in Q2 2018.

www.pwc.com/me/capital-markets-watch

2GCC Capital Markets Watch Q2 2018 |

“Q2 2018 shows a similar trend to the previous quarter in terms of number of IPOs and proceeds, and again was driven by a strong number of Real Estate Investment Trust (REIT) IPOs in the Kingdom of Saudi Arabia (KSA). There remains a sense of cautious optimism in other markets within the Gulf Cooperation Coucil (GCC) region.

The future trajectory of GCC equity markets will continue to depend on geopolitical developments, stability of oil prices and the implementation of ongoing government reform policies and related privatisation initiatives across the GCC region.

The uncertainties in the macroeconomics mean that the IPO window is narrower than it has been in the past. It is more important than ever for companies interested in capital markets funding to get ready early to capture the opportunity when it arrives.

Globally, the IPO offering value has increased by 7% despite a 25% reduction in the number of IPOs, compared to the same quarter last year. The performance of IPOs is lower this year, mainly driven by China softening. The global IPO pipeline looks promising but the global headwinds and ensuing market volatility could affect the successful conversion of the pipeline.

GCC debt markets continued to be dominated by sovereign issuances, with sizeable issuances from the State of Qatar and Kingdom of Saudi Arabia this quarter. However, given the recovery in oil prices and easing of government fiscal deficits, we would expect sovereign issuances to taper in the latter half of 2018.

European debt markets have been sluggish, with overall volumes and issuances remaining flat in this quarter. The looming global trade wars, a stronger dollar and oil prices, and concerns over liquidity in the secondary market have affected investor sentiment. We have seen a number of deals being pulled this quarter as corporates await the right window of opportunity.”

Steve Drake PwC Middle East CapitalMarkets Leader

IPO activity remains muted due to geopolitical headwinds and market volatility. REITs remain the only primary source of IPO listings

Initial Public Offerings (IPOs)


Overview

Investors continued to tread cautiously in the GCC equity markets in Q2 2018, closing the first half of 2018 on a muted note, with total of 9 IPOs (including 8 REIT listings) generating total proceeds of USD 893 million in H1 2018, compared to USD 610 million raised from 15 IPOs in the first half of 2017. The increase in total proceeds is mainly due to the two large REIT IPOs namely Sedco Capital REIT (USD 173 million) and Bonyan REIT (USD 174 million).

There has been no other IPO activity on any GCC exchange other than Tadawul and MSM which saw a USD 13 million listing of Arabian Falcon Insurance Company SAOG.

The conservative equity market activity is reflective of the subdued performance of most regional exchanges, with DFM and MSM posting flat volumes and negative returns throughout the first half of 2018.

Tadawul has been the only active market and has posted positive performance during Q2 2018 as investors take a bullish view on Tadawul in light of the recent approval of Tadawul’s inclusion in the MSCI Emerging Markets index to be completed in June 2019. This MSCI upgrade is expected to attract foreign investment and provide a positive boost to the Tadwaul equity market.

All top three IPOs by value are REITs that listed on the Kingdom’s Tadawul exchange

Initial Public Offerings

Figure 2: Top 3 GCC IPOs in Q2 2018 by money raised

Figure 1: GCC IPOs during Q2 2018


SEDCO Capital REITSector: Real Estate

Money raised (USD): 173 million

Stock Exchange: Tadawul

No. shares offered: 65.0 million

Bonyan REITSector: Real Estate




1 Swicorp Wabel REITSector: Real Estate




32

Kingdom of Saudi Arabia (KSA)Number of IPOs: 4

Sultanate of Oman (Oman)Number of IPOs: 1

GCC IPO trendsInvestors remained cautious in Q2 2018, although the YTD proceeds are higher than this time last year

Figure 3: GCC IPO activity since 2013

Figure 4: GCC quarterly IPO activity since 2013

Source: Bloomberg terminal, PwC analysis

GCC Capital Markets Watch Q2 2018 |

702 10,750 1,439 782 3,300 893

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Launch of NOMU

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Development IPOs

Tadawul remained the best performing stock exchange during Q2 2018, followed closely by Abu Dhabi Securities Exchange (ADX). DFM and MSM posted negative returns

Market performance

Figure 5: GCC IPO activity since 2013

Source: Bloomberg terminal, PwC analysis


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2017 2018

Global IPO markets continue to be volatile amidst geopolitical tensions and global trade wars

Global IPOs

Figure 6: Global IPO activity

Geopolitical uncertainties arising from the US v. rest of the world trade war and the newly elected Italian populists have caused markets to switch between “risk-on” and “risk-off” mode, with higher volatility ensuing naturally.

On the monetary front, the Fed has raised rates for a second time this year, and signaled two more rate rises are coming this year. On the contrary, the European Central Bank (ECB) and Bank of England (BoE ) sounded much more dovish, as inflation remains below target. Nonetheless, the ECB did announce to wind-down quantitative easing by the end of the year. Volatility could very well be here to stay, making solid preparations before listing even more important.

Despite the challenging market conditions and the resultant reduction in deals volume by 25%, global IPO proceeds were up by 7%. In total, 300 IPOs raised USD 58.1bn in Q2 2018 (2017: 398 and USD 54.1bn; 2016: 253 and USD35.2bn).

Although the global IPO pipeline for 2018 looks promising, with global headwinds increasing, market volatility levels could further increase and the pipeline could fail to materialise.Source: Dealogic as at 30 June 2018

Figure 8: Top 3 global IPOs in Q2 2018 by money raised


Foxconn Industrial InternetExchange: Shanghai SE

Pricing date: 23-May-18

Money raised: USD 4.3bn

Free Float: 10.0%

2XiaomiExchange: HKEX

Pricing date: 29-Jun-18


Free Float: 9.7%

1 AXA EquitableExchange: NYSE

Pricing date: 9-May-18


Free Float: 28.1%

3

Figure 7: Top stock exchanges by % of total IPO value raised

NYSE, 17%

NASDAQ (Global),

17%

HKEX, 10%

Deutsche Börse, 8%

Shanghai SE, 8%

Others, 41%

GCC debt markets witnessed sizeable sovereign issuances from Qatar and Saudi

GCC bond and sukuk issuances

Led by the State of Qatar and the Kingdom of Saudi Arabia, the GCC sovereign bond market witnessed proceeds of USD 22.9 billion during the second Quarter of 2018 from its two largest sovereign bond issuers. The USD 12.0 billion sovereign bond issued by Qatar represents the largest placement by an emerging market sovereign so far this year. On the corporate front, debt activity has been relatively slow.

However, with the recent recovery in oil prices and improvement in government fiscal deficits, sovereign debt issuances are expected to taper in the latter half of 2018.

Highest value of sovereign bond issued in Q2 2018 by the State of Qatar

The State of Qatar issued a bond which is consisted of three tranches: a USD 3.0 billion 5 year tranche, a USD 3.0 billion 10 year tranche and a USD 6.0 billion 30 year tranche. In addition, the Government of Saudi Arabia issued a triple-tranche bond total valued $10.9 billion.

Total value of corporate bond issued by Oman Telecommunications Company in Q2 2018

Oman Telecommunications Company issued a secured note in two tranches: a USD 600 million, carrying a 5.63% coupon, maturing in 2023; and a USD 900 million, carrying a 6.63% coupon, maturing in 2028.

Total value of Noor Bank sukuk issuance in Q2 2018

After its last issuance in 2016, Noor Bank returned to market with a 5 year USD 500 million sukuk, maturing in 5 years and listed on Nasdaq Dubai.


Figure 9: Notable debt market activity during Q2 2018

$23 billion

$1.5 billion

$500million

Contacts

About PwC’s GCC Capital Markets Watch

GCC Capital Markets Watch surveys IPOs on GCC’s principal stock exchanges and market segments in addition to conventional bonds and Sukuk issuance on a quarterly basis. This survey was conducted between 1 April 2018 and 30 June 2018 and captures the relevant data based on their transaction date. Capital Markets Watch GCC is prepared by PwC Middle East (www.pwc.com/me). All market data is sourced from publically available information and has not been independently verified by PwC.

© 2018 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of

PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Steve Drake

Partner, PwC Middle East Capital Markets Leader

Direct: +971 (0) 4 304 3421 Mobile: +971 (0) 50 451 4661Email: [email protected]

Muhammad Hassan

Partner, PwC Capital Markets, Middle East

Direct: +971 (0) 4 304 3443 Mobile: +971 (0) 50 174 2472Email: [email protected]

Sergiu Gherasim

Partner, PwC Capital Markets, KSA

Direct: +966 (11) 2110400Mobile: +971 (0) 56 417 6719Email: [email protected]

gcc capital markets watch q2 2018 - pwc · saudi arabia (ksa). there remains a sense of cautious...

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