The coming year looks to be another challenging one in terms of expectations for initial public offerings (IPO) in the GCC region, with only eight initial public offerings across the GCC in 2011 compared to 14 in 2010.
However, according to Deloitte, on the positive side, given the scarcity of recent issuances, businesses that achieve readiness will attract greater investor interest, experience a shorter and more efficient IPO execution and approval process and, most importantly, the ability to list when they want rather than when they can.
An important development across the GCC over the last two years has been the ongoing review and revision of the listing rules by the Saudi Capital Market Authority, Dubai Financial Services Authority, and the Qatar Financial Markets Authority, amongst the larger regional exchanges. These revisions have been instituted with an aim to raise the minimum requirement around corporate governance, business systems and processes, and financial discipline at a level that would be required of a listed company.
“Based on interaction and discussion with the regional regulators, the main themes coming out are around greater transparency, a stringent requirement that IPO candidates have robust financial systems and environment, and for the business to have world class corporate governance once listed,” Declan Hayes, managing director Transaction Services at Deloitte in the Middle East, said.
The requirement for due diligence is being raised and prospective issuers that are not already meeting listed company obligations are being told to take more time to remedy such deficiencies and reapply once ready.
“The message for issuers is quite clear, what may have been acceptable in the past may not be adequate going forward. Therefore to run an efficient and rewarding process for all stakeholders, you need to be IPO ready before commencing the journey,” Hayes, added.
“Regionally we are monitoring a pipeline of corporates that are aspiring to access the equity capital market in the GCC and indeed internationally, ranging from business at an early pre-IPO stage to issuers who are undergoing an approval process with the respective listing authorities,” Adnan Fazli, director in the Capital Market Transaction Services team at Deloitte in the Middle East, said.
Based on recent regional listings it takes, on average, 18 months from conception to actual listing, with the unprepared facing further delays. The early stage prospective issuers need to assess their suitability to list, both in respect of external considerations such as their equity story (investor appeal) and appropriateness of listing exchange, and equally importantly internal considerations around the resources and capability of management and the internal systems to deal with the rigors of the listing and post-listing environment.
IPO readiness advisory services, one of the offerings under Deloitte’s Transaction Services line, is witnessing increased demand amid the current market conditions and challenges faced by issuers in the GCC region. In addition to IPO readiness, there is increasing demand on Deloitte’s financial due diligence services in the region to lead advisory banks on IPOs, to assist them in fulfilling their due diligence obligations.