The past few weeks saw a big movement in the Kuwaiti IPO market, as three companies scheduled their IPOs. Manafae Investment started trading in the Kuwaiti Stock Exchange in 16th of March, the Gulf North African Holding Company started trading on the 23rd, and Amwal Investments have planned their IPO for this week or the next.
The timing of such IPOs seems peculiar. First, market valuations are lower than average (both relative to other regional markets and historical), which will yield lower cashflow to the original investors. Second, given the liquidity constraints, investors don’t have the appetite for IPOs. Last, the recent stocks to be IPOed in Kuwait went down a lot.
This wave of three investment companies being IPOed in the timeframe of two weeks raises some questions. What signals are these companies giving to the average investor? Does the management/ owners/ underwriters of these companies believe that the market is ripe enough and has recovered enough for their companies to go public? Are current valuations appropriate since they did not wait for the market valuation to increase as the market appreciates? Are liquidity constraints going to drag the price down as some investors sell their stakes? Are some major shareholders in desperate need for cash and are pressuring the companies to go public?
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Loading ...Tags: Amwal, Gulf North Africa, IPO, KSE, Kuwait, Kuwait Stock Exchange, Manafae
Another way of looking at it is entering the market at a time of low expectations
You can enter the market now and pay very low dividends if you pay dividends at all
Plus, any company with relatively low leverage and operational assets is seen as valuable compared to other investment companies with illiquid assets
In addition, you improve the company’s lending potential as you are seen as less of a risk by banks now that the company is public
All these could be potential drivers for listing in the current time
I guess it depends on how heavily the stocks are traded in the first couple of weeks, maybe that would indicate liquidity constraints and/ or pressure by major shareholders
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Naser Reply:
March 24th, 2010 at 7:05 pm
Yeah, every coin has a flip side.
If a company is still private, it wouldn’t care about the market’s expectation. I’m not sure if banks would prefer a public vs private company, all what matters is the financials of that company. My thought is why would the owners sell a chunk of their holdings in the company for a cheap price (low multiple), when they can probably get away charging a higher multiple when the market fully recovers and have a better return on their investment.
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technically what you are talking about are not IPOs but public listings. the offering was done when the company was founded and in these cases i dont think any new shares are being offered to the public or investors otherwise. it is purely a liquidity event for existing investors.
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I agree with peteyb
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