There is a zealous appetite for more stock offerings within regional markets as excess money supplies seek investment opportunities. Speaking at the 2006 Funds Summit in Dubai, Mark Mobius, the managing director of Franklin Templeton Asset Management in Singapore, remarked that while that there have been several stock market listings this year in the Middle East, there simply aren’t enough initial public offerings (IPOs) coming into the market to keep prices realistic. He added, "There was too much money chasing too few stocks. Even with the corrections that stock markets have suf­fered this year, share prices in the region remain high." For Mobius there is a simple solution to the current situation, "You’ve got to have more IPOs."

For the most part, it seems he is right. Despite a robust overall economic drive and positive corporate results, regional stock markets experienced a near free-fall in the previous year and hit two-year lows. Dubai was down 65 percent, Abu Dhabi by 41 percent and Saudi Arabia, the biggest in the region, slid 48 percent. Yet, even with corrections and underperformances within the markets, largely due to liquidity-driven stretched valuations, stock prices still remain high. Moreover, the fall in regional equity markets hasn’t prevented IPOs from doing well.

In 2006, IPOs were expected to raise more than $8 billion. Nine months into the year the raised figure reached nearly $6.2 billion, meaning a 45 percent increase from the same period in 2005. According to pri­vate equity firm Persian Gulf Capital, IPOs in the region were oversubscribed an aver­age of 98 times in the first nine months of 2006. Meaning, those that had listed by end-­September had appreciated an average of 123 percent.¹ During the first nine months of 2006, demand for shares in IPOs in the region exceeded supply by 47 times on average during the first nine months of 2006. One contributing factor is the leading perception that primary markets provide quicker profit-making opportunities. For example, Emaar Economic City’s IPO was oversubscribed by 2.8 times, as 10 million Saudis subscribed for 7.18 billion Saudi riyals ($1.95 bil­lion) in shares. This seemingly unstoppable yearning for IPOs is expected to remain in the coming year and new issues are expected to be oversubscribed as well.

While some analysts have pointed out the difficulty of completing the IPO process, which calls upon firms to adopt new legal and business measures, others believe that we will be seeing more IPOs floating in the future, even with depressed regional share markets. "If the mar­ket remains at the current level, what you will probably see is a downward revision in IPO valuations. But there is a large number of companies standing in the queue [to float IPOs] and there will be a sufficient number willing to come to the market," states Imad Ghandour, the head of research and strategy of Persian Gulf Capital.

His firm also estimates that nearly 134 companies in the region will float IPOs over the next three years. However, some companies have not been as enthusiastic about putting forth their IPOs given the unstable equity markets. Oger Telecom ­cancelled its $1.25 billion IPO hours before its opening and a number of Saudi IPOs were pulled out midway through the process or were delayed. The fall in regional share markets, bringing about depressed valuation, is also expected to slow down the introduction of new IPOs.

Another factor slowing down the drive for IPOs may be the poor performance of leading regional markets in 2006. In terms of market performance, the year was the worst for the Saudi market, which is the largest in the region and naturally affects all others. Losses last year wiped out all the gains achieved by the market in 2005. Yet, Saudi Arabia remains the most active IPO market, raising more than $2.3 billion in the first nine months of 2006. The UAE and Qatar markets raised $1.4 billion and $1.3 billion respectively, while the Bahraini IPO market was uncharacteristically active, with $1 billion raised compared with only $6 million in 2005.