Saudi to become the Middle East’s IPO ‘engine’

With plenty of institutional money ‘on the sidelines’, the exit environment for private equity firms in the desert kingdom is improving, according to Dubai-based Al Masah Capital.

Saudi Arabia will be home to the most active IPO market in the Middle East and North Africa (MENA) in the “next two to three years”, according to Dubai-based alternatives firm Al Masah Capital.

Saudi: Potential Mid East
IPO “engine”

Of the 106 regional IPOs announced from the 2010 pipeline, 47 came from Saudi, the largest number from a single country, according to a research report produced by Al Masah. Although this accounts for $1.03 billion in comparison to the UAE’s $25.3 billion, the number of IPOs announced in Saudi is almost double that of the UAE.

A company spokesperson cited the government’s active involvement in the country’s economy as well as its concerted efforts to diversify away from oil, with planned economic cities – such as the King Abdullah Economic City – to include the region’s largest financial centre.

Whilst the UAE is more familiar to investors, it is Saudi that will become the region’s “engine” in the next few years, with larger UAE-style individual IPOs taking place, said Al-Masah’s spokesperson, who also added that the desert kingdom is “opening up”, especially in sectors like healthcare and education, which are already attracting foreign investment and hiring foreign talent.

Increasing IPO activity, which Al Masah argues is supported by a large supply of institutional cash “sitting on the sidelines waiting for opportunities”, should give private equity firms confidence in their ability to exit investments. “If the MENA IPO pipeline does get better and there are the right stories and the right companies, there is cash on the sidelines that would be interested in it,” a spokesperson for the firm said.

According to Al Masah, there is now growing awareness across the Middle East that corporate governance, as well as regulatory and government entities, must be strengthened. Both Bahrain and Kuwait have set up new regulatory structures.

The firm’s research found that the number of IPOs in the region during Q1 was double that of the same period last year, with $6.8 billion raised through 62 issues this year in comparison with $3.7 billion through 29 issues in 2009.

Al Masah Capital was founded last year by Shailesh Dash, the former private equity chief of Kuwait-based Global Investment House.