Surge in Equity Capital Markets Transactions in the Gulf Cooperation Council (GCC) Region

Overview

The GCC has seen a significant increase in the number of initial public offerings (IPOs) over the last few years, even as the number of IPOs globally was declining. This surge has been driven mainly by regulatory reforms, a privatisation push, the resilience of regional economies, and oil and gas prices recovering from their COVID-19 pandemic lows. In addition, the region is benefitting from positive macroeconomic and demographic trends, including a young and growing population, increasing urbanisation and higher consumer spending, which collectively strengthen the economic environment and investor confidence in the GCC markets.

In contrast, global IPO markets faced a downturn, with European markets being particularly affected by broader geopolitical tensions, inflationary pressures and energy crises.

What comes next?

Global investors are increasingly seeking opportunities in rapidly expanding markets, and the GCC stands out as a prime region for growth. It has long been an attractive area for business expansion and, in recent years, substantial economic growth has further fuelled interest from foreign investors. In addition, the strong performance of companies that have listed in recent years and the healthy post-IPO prices have made more companies consider IPOs and attracted more investors. As a result, demand for equity capital market instruments has risen, positioning the GCC as an appealing destination for IPOs, with several prominent offerings anticipated in the near future, suggesting continued momentum in this trend.

After a huge wave of IPOs over the past few years in the GCC, which have been largely state-backed, the next step for equity capital markets in the region (and particularly the UAE) is expected to be an increased number of follow-on offerings and dual listings, and a strong pipeline of private sector IPOs.

A closer look at the UAE

The UAE's stock market landscape has undergone significant transformation over the past few years, largely fuelled by an accelerated series of IPOs. Dubai and Abu Dhabi have emerged as pivotal centres for public listings, with major state-owned and private entities leveraging the IPO route to raise capital, monetise assets, attract foreign investment and diversify their revenue streams. These developments have made the UAE one of the most attractive markets for both regional and international investors.

The UAE led the region in terms of IPO proceeds in 2023, raising a total of USD6 billion from eight offerings, which accounted for 58% of 2023 IPO proceeds in the GCC.

The GCC equity capital markets are expected to continue to grow, and this has been evident through IPO activity to date. In the second quarter of 2024, 13 GCC IPOs raised a total of USD2.6 billion. Two of the top five GCC IPOs in the second quarter of 2024 were in the UAE (one on ADX and the other on DFM, as defined below).

In that same period, proceeds from follow-on offerings accounted for more than USD12 billion, with the Saudi Aramco follow-on offering resulting in USD11.2 billion in proceeds, followed by the ADNOC Drilling follow-on offering resulting in nearly USD1 billion in proceeds.

Key players and IPO regulatory landscape

The Securities and Commodities Authority (SCA) is the competent regulatory authority in the UAE and is responsible for overseeing and regulating the UAE's securities markets, ensuring transparency, investor protection and adherence to global best practices in financial markets. SCA sets out the rules and regulations that companies must follow when seeking to go public. These include regulations covering the preparation of prospectuses, disclosures, corporate governance requirements and the rights of investors. SCA also monitors the ongoing compliance of publicly listed companies, to ensure they maintain high standards of transparency and accountability.

The Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) are the two major stock exchanges in the UAE, which provide the necessary platform for companies to raise capital through IPOs and subsequent trading of shares.

SCA has agreements in place with ADGM and DIFC (see Key regulatory changes, below), which enable ADGM-based and DIFC-based public companies to list shares on the UAE markets.

Key regulatory changes

Historically, only public joint stock companies incorporated “onshore” in the UAE (ie, companies that are established within the mainland jurisdiction of the UAE, outside of the free zones) and foreign joint stock companies listed in their home jurisdiction were eligible for listing in the UAE. However, the changes introduced by SCA have broadened the scope for listings, allowing free zone companies to access the public markets. As part of that initiative, SCA entered into agreements with the ADGM and the DIFC to facilitate the IPOs and listings of public companies incorporated in such free zones on the UAE stock markets.

This change in regulation came into force in 2021 and was a significant development in the UAE IPO landscape. Together with the removal of long-standing limitations on foreign and free zone ownership of UAE “onshore” companies, these developments permit UAE public companies to be structured with a listed holding company organised in a free zone (such as the ADGM and the DIFC) and operating subsidiaries “onshore” in the UAE.

In 2021, Fertiglobe was the first free zone company (ADGM) to list on a UAE stock exchange (ADX). This set a trend that was followed by many other companies, including Borouge, Americana, ADNOC Gas and ADNOC L&S. In 2024, Spinneys was the first DIFC-incorporated company to list on a UAE stock exchange (DFM). Issuers have increasingly opted for this structure given the features of the ADGM and the DIFC (including legal form of company, legal regimes and court systems heavily influenced by English law), and this is expected to be the base-case for future IPOs in the UAE.

This regulatory shift is part of the UAE’s broader efforts to enhance the attractiveness of its capital markets for investors and businesses. These reforms demonstrate the UAE's commitment to expanding its financial markets and attracting global business, providing opportunities for a wider array of companies to tap into regional liquidity.

Additional recent changes to the corporate governance code issued by SCA, implemented earlier this year, marked a critical shift towards strengthening the corporate governance, internal controls system and risk management regime for listed entities. Such changes were made with a view to bringing the governance code in line with global standards, and included amendments to the independence criteria for board members, the definition of “related parties” and board composition requirements.

Follow-on offerings: more to come?

Follow-on offerings, or secondary offerings, which are the offering of listed shares, may become a critical tool for selling shareholders to raise additional capital after an IPO. With a surge in IPO activity over the past few years, particularly from state-backed companies, only a relatively small percentage of which were previously offered to the public, the trend of follow-on offerings is expected to grow.

Follow-on offerings may take place by way of accelerated bookbuild offerings (ABOs), which involve the offering of listed shares, usually by a significant shareholder with little to no marketing. As opposed to the bookbuilding process that is associated with an IPO, the offer period for an ABO is very limited (ie, usually one evening). Typically, an ABO is launched shortly after close of market, with pricing occurring overnight (to the extent successful) and (in many cases) crossing of the trade reporting through the relevant securities exchange at the open of market the following day, followed by settlement on the regular secondary cycle.

Follow-on offerings may also take the form of fully marketed offerings (FMOs), which allow significant shareholders to sell a substantial portion of their shares in a public company with more marketing than is available in an ABO (including a management road show and/or the preparation of an offering document).

In theory, FMOs can take two forms:

• a private placement aimed at institutional investors (these typically involve minimal regulatory oversight and do not include any retail participation or public subscription); or
• a public retail offering that necessitates regulatory scrutiny, including the review of an offering document by the overseeing body.

Notable follow-on offerings in the UAE (and broader GCC region)

Notable follow-on offerings over the past few years in the GCC have included:

• the FMO of STC in 2021, in which the Public Investment Fund (PIF) sold an additional 5.01% stake in STC;
• the combined offering of ADNOC Distribution shares and issuance of exchangeable bonds in 2021, which represented the sale by ADNOC of a stake representing approximately 3% of ADNOC Distribution’s share capital, and the issuance of senior unsecured bonds that are exchangeable into existing shares of ADNOC Distribution constituting approximately 7% of ADNOC Distribution’s share capital;
• the FMO of Saudi Aramco in 2024, in which the Saudi government sold an additional stake in Saudi Aramco representing approximately 0.64%;
• the ABO of ADNOC Drilling in 2024, in which ADNOC sold an additional stake in ADNOC Drilling representing approximately 5.5%; and
• the ABO of ADNOC Drilling in 2024, in which Helmerich & Payne Inc. sold its stake in ADNOC Drilling representing approximately 1%.

These follow-on offerings serve as an effective tool for state-backed companies to monetise their assets by selling additional stakes and gaining access to further capital while offering investors greater liquidity. Given such companies’ significant market position in their respective industries (including telecommunications, and oil and gas), these offerings gave investors an opportunity to gain additional exposure to such industries.

Market outlook: future follow-on offerings

A large number of other state-backed entities went public in the last few years in the UAE, including:

• ADNOC Distribution in 2017;
• Borouge, DEWA (the largest IPO in the UAE to date), Empower and Salik in 2022;
• ADNOC Gas (which was the largest IPO globally at the time), ADNOC L&S and Dubai Taxi in 2023; and
• Parkin Company in 2024.

These state-backed IPOs are part of broader initiatives aimed at diversifying the UAE’s economy away from oil dependency and expanding liquidity in the country’s capital markets. Given the scale of these IPOs, market analysts anticipate that these companies, similar to ADNOC Drilling, will pursue follow-on offerings to further raise capital.

The UAE government’s proactive approach in listing key state-owned assets on the ADX and DFM has not only expanded market depth but also created new opportunities for institutional and retail investors. As these companies look to implement long-term growth strategies, follow-on offerings are a natural extension of their financing plans.

The dual listing process: a growing trend in the GCC

The dual listing process allows companies to offer their shares on two separate stock exchanges in two different countries, providing wider access to investors and increasing liquidity. In the context of the GCC, dual listings have gained traction as companies seek to capitalise on the growing capital markets in both the UAE and Saudi Arabia, two of the region’s most significant financial hubs.

A dual listing requires compliance with the regulatory frameworks of both exchanges, and a careful synchronisation of the trading mechanisms and share prices. This is critical to ensure “fungibility” between shares traded on the two exchanges and to enhance overall liquidity. In the case of Americana (see The Americana IPO, below), the company dual listed on the ADX and Saudi Tadawul. By listing in both the UAE and Saudi Arabia, Americana was able to broaden its investor base and leverage the strong regional demand for IPOs.

From a legal and regulatory standpoint, dual listings in the UAE and Saudi Arabia are facilitated by mutual agreements and increasingly streamlined procedures between the respective stock exchanges. Companies seeking a dual listing must ensure that they meet the listing requirements of both exchanges, including financial reporting standards, corporate governance practices and transparency obligations. Additionally, shareholders are typically allowed to transfer shares between exchanges, subject to certain fees and approvals.

The Americana IPO

Americana dual listed on the ADX and Saudi Tadawul in December 2022, and raised approximately USD1.8 billion, making it one of the largest IPOs in the region. The Americana IPO attracted significant interest from both institutional and retail investors, and saw strong demand from Saudi and UAE investors.

The success of Americana's dual listing set a precedent for other companies considering the dual listing model. Americana’s ability to tap into two of the most liquid capital markets in the region provided enhanced visibility and liquidity, allowing the company to diversify its investor base and raise substantial capital for future growth – an objective also held by many other companies.

Market outlook: a growing trend

Following the success of the Americana IPO, the GCC is poised to see more companies exploring the dual listing route, which underscores the growing recognition of the benefits of dual listings, particularly for companies operating across multiple jurisdictions in the Middle East.

By providing companies with access to a wider pool of investors and enhancing liquidity, dual listings are likely to become more prevalent in the region, especially as more sectors seek to leverage the growing sophistication of the UAE and Saudi capital markets.

Strong pipeline of private sector IPOs

While the UAE’s capital markets have traditionally been dominated by large state-backed companies, the private sector (including sectors such as retail, education and financial services) has increasingly played a significant role in fuelling the UAE’s IPO pipeline. Over the past few years, the UAE has witnessed an increase in private sector IPOs, signalling strong investor confidence and a strong appetite for public market participation beyond state-backed companies.

Notable private sector IPOs

The most notable private sector IPOs have included Alef Education (a digital education company based in Abu Dhabi) and Spinneys (a large grocery retailer in the Middle East), which listed on ADX and DFM, respectively, earlier this year and are two of the five largest IPOs in the GCC in the second quarter of 2024. Prior to this, the UAE also witnessed the IPOs of Taaleem Holdings (one the largest private education providers in the UAE) and Al Ansari (one of the region’s largest money exchange and remittance companies).

Market outlook: increased private sector IPOs

The UAE’s private sector IPO pipeline is expected to remain strong in the coming years, mainly due to the country's rapidly diversifying economy, favourable regulatory environment and growing investor confidence. Notably, in September 2024 Delivery Hero announced its intention and plans for an IPO of talabat, one of the leading food and grocery ordering and delivery platforms in the region, and the upcoming IPO and listing on the ADX of Lulu Group was announced in October 2024.

Private companies from sectors such as healthcare, logistics and technology are exploring public listings, reflecting the broader economic transformation underway in the UAE. Moreover, with the growing trend of family-owned businesses, such as Al Ansari, choosing to go public, more private entities are likely to consider IPOs as a viable route for long-term growth, succession planning and diversification of ownership.

In addition, the strong post-listing performance of such companies is likely to serve as an incentive for other private sector companies to consider and seek public listings.