Arab capital markets in the Gulf region will not see a major recovery in 2010. That was the consensus which came up at a workshop on initial public offerings (IPOs) at stock exchanges held at the Dubai International Financial Center (DIFC) Sunday.
"The regional IPO market dried up after the fall of U.S. investment bank Lehman Brothers in September 2008," said Nasser Saidi, chief economist at the DIFC Authority.
"And the market has not yet recovered significantly, neither regionally nor globally," he added.
According to Phil Gandier, managing partner at Ernst & Young Middle East, global IPO activity by number of IPOs was lower in the first 11 months of 2009 (459 deals) compared with the same period in 2008 (740 deals).
Only 1 percent of this volume has taken place in Saudi Arabia, and also 1 percent in Qatar where an IPO of Vodafone Qatar raised 952 million U.S. dollars during the second quarter of 2009.
Other announced IPOs such as Al Tayer group stopped an IPO during the bookbuilding and Emirates Airline's announcement from 2008 to go public has never again repeated publicly as yet.
But not only economic uncertainty is preventing more firms from listing shares at exchanges.
"In the Gulf Cooperation Council (GCC), some 85 percent of firms are controlled by families," Saidi said. Insolvency laws and clear rules saying how transactions can work out legally when firms merge or acquire other entities are still missing in most GCC countries.
"The GCC is undergoing a major restructuring which will take another 12 to 18 months," Gandier said. The experts at the workshop agreed mainly that Dubai's stock exchange, the Dubai Financial Market (DFM), will not see a major rally too soon. Since the start of 2010, the DFM index has been trading sideways around 1,600 points.
The GCC is a political and economic union comprising Saudi Arabia, Kuwait, Qatar, Bahrain, the United Arab Emirates (UAE) and Oman.
Most families in the region keep their capital close to their chests and shy away from taking risks. Peter Fort, executive director at Morgan Stanley in the DIFC, expected intra-regional investments to rise at the expense of international expenses.
"The Sovereign Wealth Funds of Qatar and Abu Dhabi will, however, not stop to look for bargain investments abroad," he said.
Abu Dhabi, the wealthiest member of the seven-strong federation UAE, holds 9.1 percent in German car giant Daimler AG and aims to increase its stake to 15 percent within the next two years. With a 10 percent stake, Qatar is the biggest shareholder at Swiss bank Credit Suisse.
IPOs are an essential lubricant of the world economy in relation to innovation, capital raising and risk transformation.
"During the last 10 years, IPOs created 350 billion market capitalization," said Josef Schuster, founder and CEO of Chicago- based IPOX Schuster LLC, which examines the performance of newly- listed stocks globally.
Echoing the DIFC Authority's Saidi, Schuster said the Asian- Pacific region will continue to fuel the wave of IPOs in the post- crisis era.
"Asia Pacific represented 70 percent of IPO activity (by deals) for the 11 months of 2009," with the top exchanges being the southern Chinese city of Shenzhen, China's Hong Kong and the KOSDAQ in Seoul in South Korea, Ernst & Young Middle East's Gandier said.