Gulf IPOs a distant prospect
Posted on 18 July 2009 with no comments from readers
The Gulf Cooperation Council stock markets would love nothing more than to follow the Chinese who ended a 10-month IPO drought last week with two initial public offerings that were priced at more than 30 times last year’s earnings and heavily oversubscribed.
But while the Shanghai composite index is up 80 per cent from its lows, most Gulf stock markets are still in negative territory for this year.
Oil price rally
In some respects this is strange. For oil prices have rallied from $32 last December to a peak of $72 this summer, so there is reason for a GCC stock rally, whereas Chinese exports are down a thumping 23 per cent and only ultra-lose lending policies have kept the economy from tanking, and these same loans seem the only reason for the stock market’s strength.
So Chinese stock markets are a nasty bubble waiting to pop, while oil revenues in the GCC are the real thing, although any correction in global markets is likely to include oil, and one top analyst has just forecast a plunge to $20-a-barrel.
That said nobody in the Gulf is going to be terribly keen on an IPO that prices their company at current stock market levels. There is also another not so small issue: nobody will be keen to buy a discounted IPO in a bombed-out stock market.
OK there are certainly corporates that could do with an injection of capital from an IPO – but that would be for all the wrong reasons and investors are going to be wary of real estate or financial companies in the current economic slump.
Bond preference
For the time being it looks as though bonds will remain the preferred route for GCC fund raising rather than selling off the family silver cheaply, if anybody will buy it. Bonds provide investors with the security of debt rather than shares written against the falling value of a quoted company.
What could send IPOs back to their 2006 boom levels in the Gulf? Only a sustained period of economic recovery followed by a stock market boom.
That could come sooner than generally thought if inflation caught in the oil price as a side-effect of the global monetary growth being promoted to beat the recession. But IPOs are certainly not an option worth spending too much time considering today.
