Financing investments in the Gulf IPO boom
27 December 2024
The Middle East has largely bucked the global decline in initial public offerings (IPOs) since 2022,[1] with the markets of the Gulf Cooperation Council (GCC) countries looking set to continue their streak of successful listings over the past three years into 2025.[2]
Investors wishing to participate in the region’s booming IPO market may wish to consider securities-backed financing, which can offer several advantages as a source of capital for IPO financing compared to other traditional sources, such as margin loans from banks and brokers.
The growth in equity markets across the countries of the GCC — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates – has been driven by efforts to diversify the region’s economies away from oil and gas. This has resulted in the gradual opening up of markets to foreign investors since 2015. Before that, for example, the region’s largest market of Saudi Arabia was entirely closed to non-GCC investors.[3]
Now the region’s stock markets have become accessible and globally integrated, with the UAE, Qatar, Saudi Arabia and Kuwait making up 6.5% of the MSCI Emerging Markets Index as of mid-2024.[4] But given that it is still relatively early in the GCC’s journey of equity market transformation, there remains considerable potential for further growth.
The next stage of that journey will bring greater diversity in IPOs. The biggest and best-known GCC listings so far have involved the sale of state assets, including the 2019 IPO of Saudi Arabian oil giant Saudi Aramco, which stands as the biggest IPO of all time.[5] But more recently, listings have increasingly been dominated by private entities from a growing range of sectors.
In November, the GCC welcomed one of the region’s largest IPOs with the listing of its biggest retail chain, Lulu Retail Holdings. Lulu, which operates a string of hypermarkets in the UAE, Saudi Arabia, Oman, Qatar, Kuwait and Bahrain, secured demand for 2.58 billion shares within an hour of opening the books for its Abu Dhabi IPO. The strength of interest from cornerstone, institutional and local investors allowed it to upsize the offering and raise $1.72 billion.
That record would not stand for long, however. This month, online food delivery business Talabat raised $2 billion in what also became the largest global technology IPO in 2024.[6] Notably, it was also the first-ever technology sector IPO on the Dubai Financial Market — one of the UAE’s three stock markets, alongside Nasdaq Dubai and the Abu Dhabi Securities Exchange.
Looking ahead, experts predict technology IPOs will become increasingly prominent, with many tech companies in the pipeline planning to list in 2025.[7] They may well receive a warm reception given that technology stocks are currently under-represented in the region’s equity markets: the information technology sector accounts for just 1% of the MSCI GCC Combined Index, compared to over 25% in both the developed market and emerging markets indexes.[8]
Demand stokes demand
Demand for the growing number of large GCC IPOs has rarely been so strong, and is underpinned by generally robust performance. Although some stocks have declined following their debuts, many have soared. As of early November, stocks that went public via IPOs in the Gulf in 2024 rose 7% in their first day of trading and were up 15% on average.[9]
Strong demand for IPOs in the region has led to a series of rapidly and heavily oversubscribed deals.[10]
Lulu attracted around $37 billion of orders in the end, for example, while supermarket chain Spinneys drew $19 billion of orders for its $375 million Dubai IPO. Fakeeh Care Group also had Saudi Arabia’s biggest IPO of the year covered within an hour of books being opened, eventually pulling in $91 billion of orders for its $763 million offering.[11],[12],[13],[14]
This dynamic becomes self-reinforcing: when investors expect strong demand for an IPO and positive aftermarket performance, they scale up their orders to maximise allocations, which further strengthens demand.
Increasing IPO order sizes to ensure good allocations means investors may require additional liquidity – otherwise they may have to sell existing shareholdings or deplete cash reserves, both of which may entail significant opportunity costs.
Margin financing may be available from banks and brokers, but this is likely to be short-term, limited in terms of the leverage on offer, constrained in terms of use of proceeds and relatively expensive.
However, as private financing markets grow, specialized alternative capital providers are able to offer a solution to this challenge for investors looking to participate in the GCC’s IPO boom.
Securities-backed financing enables investors to raise liquidity against existing shareholdings without many of the constraints of traditional margin lending. This can be used to finance scaled-up investments in GCC IPOs, or for any other purpose. With market observers expecting continued strength in the region’s IPO markets, this gives investors another way to fuel their orders.[15]
As the GCC’s capital markets evolve, securities-backed financing will add valuable liquidity. This could potentially contribute to hastening the rise of its burgeoning IPO landscape.
[1] https://www.emeafinance.com/live/actual/news/3284-gulf-ipo-boom
[2] https://www.pwc.com/m1/en/media-centre/2024/outlook-for-gcc-ipos-remains-positive-for-2024-despite-relatively-quiet-q3.html
[3] https://www.ssga.com/library-content/assets/pdf/global/equities/2024/shifiting-sands-gcc-equity-market-transformation.pdf
[4] https://www.ssga.com/library-content/assets/pdf/global/equities/2024/shifiting-sands-gcc-equity-market-transformation.pdf
[5] https://dealroom.net/blog/biggest-ipos-of-all-time
[6] https://www.wam.ae/en/article/b6meb89-talabat-debuts-dubai-financial-market-largest-tech
[7] https://www.zawya.com/en/markets/equities/gcc-ipo-pipeline-robust-q4-with-tech-firms-to-take-the-spotlight-in-2025-h13347xh
[8] https://www.ssga.com/library-content/assets/pdf/global/equities/2024/shifiting-sands-gcc-equity-market-transformation.pdf
[9] https://www.bnnbloomberg.ca/investing/2024/11/04/gulf-ipos-see-soaring-demand-as-economies-diversify-from-oil/
[10] https://www.bloomberg.com/news/articles/2024-11-14/billionaire-ali-s-lulu-falls-in-debut-after-mega-abu-dhabi-ipo
[11] https://www.luluretail.com/ipo
[12] https://www.bloomberg.com/news/articles/2024-05-01/spinneys-375-million-dubai-ipo-draws-orders-worth-19-billion
[13] https://www.bloomberg.com/news/articles/2024-05-02/saudi-hospital-group-fakeeh-tees-up-riyadh-s-biggest-ipo-of-2024
[14] https://www.agbi.com/markets/2024/05/fakeeh-care-group-orders-91bn-saudi-ipo/
[15] https://www.agbi.com/analysis/banking-finance/2024/10/late-year-flurry-of-flotations-forecast-for-gulf/
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