beyondbrics

Before the financial crisis, equity share sales were the biggest craze in the Gulf since the discovery of oil, with governments forcing companies to shower citizens with cut-price stocks.

The IPO wave crashed when markets plummeted and banks stopped financing share purchases. But now there are signs of recovery with bankers hoping a smattering of share sales in Saudi Arabia and Oman this year could signal that the IPO market is re-emerging from the financial wreckage.

Yet Gulf investors should not count on a return to the supercharged share sales of the pre-crisis years. Then governments wanted to distribute wealth to citizens and business owners were required to offer stock to the public at cheap rates, ensuring blockbuster oversubscriptions and eye-watering returns of up to around 500 per cent following flotation.

Now IPOs are subject to a western-style bookrunning process. A prime example is Nawras, Oman’s second largest telecoms company, which is currently trying to raise up to OR234.3m ($608m) from investors. The with a price range of OR0.702-OR0.902 seen as expensive by some retail investors, analysts say.

Saudi Arabia, the only Gulf market to see successful flotations this year, has also started to move tentatively towards a bookrunning system. Other countries could soon follow.

However, shifting from crowd-pleasing tactics to a more realistic assessment of corporate valuations could spur more IPOs. Many merchant families controling sprawling private business empires have been reluctant to sell shares at government-mandated prices.

While subscriptions may no longer be held in football stadia as tehy sometimes were pre-crisis, but bankers and analysts say local capital markets will benefit from a more mature price and process in the longer run.

If the Nawras offer succeeds, it will be first IPO in Oman since the financial crisis broke, and one of the largest IPOs in the Gulf since 2008. Bankers it would be a helpful precedent for many more sales which are in the pipeline.