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16| pfi | Middle East Report 2010 IPOs


Institutions take the lead I


n mid-2008, equity capital markets bankers cover- ing the Middle East relocated from London to Dubai. Once Morgan Stanley, Goldman Sachs and Credit Suisse had made the first moves, other banks had to follow to avoid any sense that they were less com- mitted to the region. Yet since then, markets have col- lapsed and issuance has been low. “Many people are looking around for ways to come


back,” said one of the bankers that initially made the move but has since changed roles and relocated in Europe. “It hasn’t been hard to keep busy as there are plenty of opportunities, but markets are so weak you knew many of them would not happen.” It is only in the last quarter of 2010 that there are the first signs that things are changing and issuance from the region could be on the up. Yet the response to the first major initial public offering from the Middle East of the year in the form of Omani mobile telecoms provider Nawras showed the nervousness that lingers from investors – and also for bankers and corporates. The IPO came on the back of a handful of small issues from the closed market of Saudi Arabia and a convertible bond for Dubai-based Emaar Properties . The lengthy timetable for Omani issues meant that Nawras was already in the market when Emaar raised US$500m through convertible bonds, but the success of the issue showed that international investors were again willing to commit to the region.


The significance of the Emaar deal to the region was illustrated by the extensive preparatory work needed to get investors on-side. When first pitched a convertible bond from Dubai, investors laughed, only to then be told that it would come from the real estate sector. But when US$3bn of demand was collected in a matter of hours for the US$500m issue, it showed how investor attitudes had changed and gave bankers and issuers increased confi- dence about the potential for straight equity issuance.


The IPO mar- ket is finally reopening, but this time institutions will be key and internationali- sation should result. Owen Wildreports.


Retail cool


On October 12, the up to OR234m (US$607.8m) IPO of Nawras was extended for an additional week of book- building. The marathon deal was launched in late August, with management completing nearly a month of road- shows alongside bookbuilding, ensuring that the one- week extension prompted fears over the quality of the book.


Local reports quickly suggested that the retail portion of the deal was only 5%–10% covered and while bankers on the deal warned not to put too much weight on those particular numbers, they added that institutional demand was strong and sufficient to see the deal through to completion. The Nawras IPO marked a significant development for the Oman equity market as it was the first to use book- building to set the price. Educating local investors about the process of bookbuilding and setting pricing was cru- cial to the process and there was always the potential for retail to be put off the deal or cut order sizes as they were unable to express their price sensitivity. Retail investors were asked to submit orders on the basis that the deal would price at the top of the OR0.702 to OR0.902 price range and they would then receive refunds if pricing came lower.


Retail interest was also expected to be impacted by the


heavy losses suffered during 2008. In that year, the MSM 30 index of the 30 largest companies listed on the Mus- cat Securities Market reached a high of 12,164.54 on June 12, but by January 22 2009 it had collapsed to just 4,187.81. By mid-October 2010 the market was still down nearly 50% from the high at 6,500.


The lack of retail enthusiasm for new issues was backed by the results of the SR612m (US$163.2m) IPO for Abdullah Am Al Khodari Sons from Saudi Arabia, announced the same day as the Nawras extension. In Saudi Arabia, if there is sufficient demand up to 50% of


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