In the dynamic landscape of equity capital markets across the GCC and MENA regions, EFG has emerged as a leading force. With a proven track record of successful IPOs and a deep understanding of regional market dynamics, EFG is well-positioned to capitalize on the current trends and opportunities.
At the EFG Hermes 10th Annual London Investor Conference, Economy Middle East speaks to Ali Khalpey, head of equity capital markets at EFG Hermes, about the key factors shaping the equity capital markets in the region, including the impact of macroeconomics, the increasing focus on growth capital, and the challenges and opportunities presented.
What are the current trends in the equity markets and how are they affecting your core strategies?
We’ve had a very interesting two years in equity capital markets across the region. In addition, we’ve seen a large trend towards deepening financial markets, mainly with the issuance of a number of IPOs coming to the market.
We’ve also seen governments being very proactive in encouraging the development of both the UAE exchanges and Tadawul in Saudi Arabia. Oman has also been very proactive, a recent issuer, and even Kuwait, where we did a recent transaction on the Boursa Kuwait.
Overall, we’ve seen a very strong impetus to develop capital markets with government companies initially coming into the market.
The most recent trend post these government IPOs is a number of private sector companies that are looking to raise capital in both primary and secondary capital markets.
Saudi Arabia has been at the forefront of that process where we’ve had a number of Saudi private sector companies go for IPOs. EFG has been privileged to introduce a number of these companies to the exchange in the last 18 months, and I think that trend will continue.
Growth capital is a big driver of the Saudi market. We are seeing a number of private sector companies who have aggressive growth profiles come and tap the market, whether to bring capital to reduce gearing ratios or to continue to grow their top line with the expansion of different product segments or new divisions within their product portfolio.
How do macroeconomic factors impact equity capital-raising activities?
The big picture for the region continues to be one of fiscal expansion. That trajectory has been most evident in what the UAE and the Saudi governments have been doing and it’s a very important pillar of keeping the growth story intact.
Economics, macroeconomics and geopolitics are very important drivers. Oil prices are incredibly important for the Saudi economy, where $70-80 per barrel is a very comfortable range for the Kingdom’s macro policies to be still effective and functioning. Below that, the economy would certainly see some tapering off in some of the giga-projects that the Kingdom has announced.
In the UAE, in particular, geopolitics is very important. Oil is important but the continued flow of people and tourism into the country remains very important. Stability remains incredibly important to continue to drive economic development across the region.
How would you classify your goals in your division for the next one to three years? How do you prioritize sectors or regions when it comes to your equity offerings?
Our goal in the next few years is to be the number one ECM house across the region. EFG has built a reputation across the GCC and MENA markets for providing capital market expertise. During the first half of this year, we were incredibly fortunate to be ranked number one.
We will continue to focus on bringing high-quality companies to the markets of Saudi Arabia, Kuwait, Oman, Egypt, Morocco and the UAE.
Our objective is to find new and interesting ideas for investors to place capital in and to help companies continue to fulfill their ambitions, graduating from family-owned or institutional-owned private equity companies into the public market space.
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What are some challenges and opportunities we’re facing in the current global environment?
We have a lot of capital chasing very few opportunities in the region. If we look at the types of books that we build on IPOs, we’ve seen IPOs that are 160 or 170 times covered, which reflects a low number of opportunities. It’s also due to other capital markets not functioning, which is a key challenge.
We’ve seen a lot of capital chase small deals in Saudi Arabia and the UAE and that needs to change since it remains the biggest challenge.
Therefore, our goal for next year is to try and find larger deals that can cater to larger asset allocators, including big emerging market investors who have not been very active in our IPO market.
We’ve seen dedicated EMEA and MENA managers participate, and domestic capital, which has grown tremendously over the last five years, also participate. However, we would like to see large IPOs and bigger companies with bigger deal sizes that cater to larger pools of capital come to our region.
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