The regional IPO surge is an opportunity to multiply wealth

23 December 2022
theregionaliposurgeisanopportunitytomultiplywealth
The regional IPO surge is an opportunity to multiply wealth

Private bankers and wealth advisers are offering access, analysis, and guidance to MENA’s wealthiest segments on the new issuances in the region

Equity markets in the Middle East and North Africa (MENA) region have been on a roll in 2022, with 24 initial public offerings (IPOs) raising USD 13.5 billion in the first half of the year, an increase of 2,952% compared to the same period in 2021. Total equity issuance as we end the year is estimated to be close to USD 20 billion.

Globally, IPOs raised USD 95.4 billion during H1 2022, a drop of 58% compared to H1 2021. While global markets witnessed declining valuations and higher volatility caused by geopolitical tensions and macroeconomic factors, MENA markets continue to be an emerging opportunity, with several more IPOs planned for 2023.

MENA IPOs in 2022 have largely been heavily oversubscribed, defying the global trend and confirming that investors still have an appetite for growth. For instance, Dubai Electricity and Water Authority (DEWA) raised over USD 6 billion and was oversubscribed 37 times. Borouge raised USD 2 billion with an oversubscription of almost 42 times. The TECOM Group raised USD 454 million and saw an oversubscription of more than 21 times. Salik, the toll operator, was oversubscribed 47 times. Divestments by the Dubai Government are adding to private listings in the UAE.  Saudi Arabia has seen a broadening of sector representation including the healthcare and retail space following Saudi Aramco’s mega 2019 offering.

This pattern has been an opportunity as well as a challenge for the private banking industry, especially in the UAE, where the number of high net worth investors continues to grow.  As many as 4,000 millionaires are expected to move to the UAE in 2022.

Equity markets make up a large composition of investor portfolios, ranging from 20% for conservative to 60% for adventurous profiles when it comes to wealth management. IPOs offer some of the biggest potential opportunities when they combine quality business attributes with compelling valuations. While some IPO underwriters may focus on institutional investors, many flagship deals are also offered to retail investors. High net worth individuals share characteristics with both.

Governments in the GCC have led the charge in expanding their equity capital markets by increasing liquidity and the flow of foreign capital, as they diversify their economies away from a dependence on hydrocarbons. It is in every country’s interest to ensure that capital markets are as deep and sophisticated as possible. This has ensured a steady supply of high-quality IPOs in recent months, including those from state-owned companies.

Wealthy investors – both individual and institutional – view this as an opportunity to diversify their investments by getting in on the inception of flotations by companies with strong business models. Post listing, 75% of recent IPOs regionally are trading above the IPO price. One of the risks associated with such a strong flow of valuable IPOs is the possibility of companies with less robust business models also taking advantage of the deepening pool of capital. The well-defined government strategy to expand and diversify the equity capital market by bringing superstar state-owned entities to IPO generally creates the momentum that paves the way for privately-owned businesses to follow suit.

It is then up to private bankers and wealth advisors to ensure that HNWI investments are putting their money into the most valuable options. This acts as a safeguard against any deterioration in asset quality. Private bankers perform this function using a three-pronged strategy: giving individual and institutional clients the right intelligence through research; giving them access to the opportunity by ensuring they are early investors; and advising them on the right price and time to sell.

With the region’s equity markets showing no signs of cooling off in the short term, the opportunity for a surge in wealth creation has, so to speak, come home for the region’s HNWI. Those who had earlier sought to multiply wealth by investing in global high-growth equity markets can now do so in their own countries. This has the additional benefit of local HNWI investors supporting the expansion of their own markets and economies.

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