Biggest post-crisis Middle East IPO; doubles ISX market cap Published in Euromoney, March 2013
The $1.2 billion IPO of Iraqi mobile operator Asiacell last month is bringing more interest in the Iraqi Stock Exchange (ISX) among both local companies and investors. Just days after Asiacell made its market debut on February 4 a rival telecoms group confirmed it would seek a listing too, and brokers and bankers say issuance could accelerate in the coming years.
The next big listing will be Zain Iraq, after its Kuwaiti parent company said on February 14 that it planned to go ahead with the IPO by June. Zain Iraq is the country’s largest mobile operator. The country’s third, smaller operator, Korek Telecom, could follow soon after.
Local brokers appear confident that there is enough appetite in the market for all these telecoms stocks. "The Iraqi market for securities is active and has the possibility of accommodating these companies," says Sami Hamoudi, manager of local broker Atlas Corporation Commissioner Securities. "There is no difficulty for these companies wishing to enter the stock market."
And as more companies come to the market, it should help further build up interest in the ISX, according to Dennis Flannery, managing director for Citi’s Iraq division. "The Asiacell and Zain Iraq transactions are great news for the Iraqi securities market. They show the world that Iraq has the ability to float these large equity issues. That shows there is a market there and it’s orderly and professional," he says.
The Asiacell deal was the largest IPO in Iraqi history and the largest anywhere in the Middle East for five years. It attracted interest from local and international investors, not least from Qatar Telecom (Qtel), which took the opportunity to increase its stake in the company from 53.9% to 64.1%. Gulf investors appeared particularly keen to buy shares in the deal, according to Shwan Ibrahim Taha, chairman of Rabee Securities, the sole distributor and selling agent for the IPO.
"This is something the GCC investors understand," he said in mid-January as the book-building process was under way. "The company has Qtel in it, so they’re comfortable with it. It’s an industry they like. We’re getting more and more calls from the GCC."
Looking back now he says: "The IPO process was much harder than I expected. Remember we were trailblazing with this listing, so I am sure that the next listing will be much easier." Among the problems was matching the 2,900 orders for the shares as the offer closed, something that delayed the start of trading by a day. With the deal successfully concluded, Ibrahim Taha says he now expects more companies to follow.
"I expect that businessmen would start looking at the market as a viable means to gather capital or exit some of their holdings," he says. "Iraq is still a difficult place to predict [...] but I think the genie is out of the bottle and we would have a viable market from now on."
Asiacell is the largest company on the Iraqi stock market by some margin. Its $5 billion IPO valuation was the same as the market capitalization of the entire ISX before it listed. Since trading began the shares have been slightly above the ID22 ($0.10) listing price, trading in a range of ID22.56 to ID23.48 a share.
When Zain Iraq joins the market it is likely to take over as the largest company, but the longer-term health of the ISX depends on a wider variety of companies listing their shares. Flannery says there are reasons to believe more diverse stocks will appear in the coming years. "Ultimately the market is going to be dependent on the quality of the issuers," he says.
"The two telecoms companies [Asiacell and Zain Iraq] are serious, well-managed companies and they’ve clearly done well. Iraq is in such a unique situation. It has tremendous oil wealth coming its way, combined with the need to rebuild a nation and a population that is well educated. If there is a good development outcome in the coming two to five years then there could well be a lot of companies in a diverse economy that could be listed on the stock exchange."
The IPO market in the region as a whole has had mixed fortunes in recent years. There were 22 deals in the Arab world in 2010, raising a total of $2.65 billion, according to Ernst & Young. Activity fell the following year, with 14 deals and $844 million. In 2012, the amount increased to $2 billion although the number of deals remained at just 14. Throughout this time it has been Gulf markets that have been the most active, particularly Saudi Arabia.
Between them, the Asiacell IPO and the promised Zain Iraq listing could almost match the total raised across the entire region in the past two years. Even so, there are some that still need to be convinced. "Iraq is not a priority growth market for us. It’s tiny," says a spokesman for one large international bank with a substantial presence around the region.
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