Investment Holding Group (IHG) announced it would make an initial public offering (IPO) subscription for 60% of its stock in January 2017. The announcement meant the company would be the first new listing in the GCC for 2017, and the first IPO on the Qatar Stock Exchange (QSE) since Mesaieed Petrochemical in 2014.
Listing Impact
The IPO was significant because it marked the first occasion that one of Qatar’s family-owned businesses decided to list. As such, those involved in Qatar’s capital markets hope it will mark a turning point in attitudes, and potentially drive a host of new listings in the coming years. These enterprises, along with government-related entities, make up the backbone of the local economy.
IHG’s history in Qatar stretches back to 1975, when it began as a contracting and trading company serving the construction sector. Since then, it has diversified its operations to include a host of activities within the construction value chain, including engineering, procurement and construction services, and building materials. It became a limited liability company in 2008.
The listing of 60% of IHG’s stock was expected to raise QR490m ($134.6m) for the company’s founders, with 49.8m ordinary shares being offered to Qatari citizens and institutions at a nominal value of QR10 ($2.8) per share. The listing anticipated a total market capitalisation for the company of QR830m ($227.9m). In June 2017 total assets for the company were valued at QR638.4m ($174.2m), down from QR984m ($270.2m) in June of the previous year.
Decision Process
IHG’s decision to list represented a substantial achievement for the bourse, which has attempted to persuade local family-owned businesses to go public for a number of years now. Chief among sticking points has been the reluctance of privately owned businesses to submit to the degree of disclosure and regulatory oversight required in going public.
By contrast, the potential benefits of listing have – until recently – offered little in the way of a compelling argument for many family-owned businesses. A majority have been able to either comfortably self-finance their growth or obtain sufficient financing from the banking sector. In some cases, it has been difficult to sufficiently convince the founders of such businesses of the benefits listing would bring them. However, two elements have begun to change the calculation. The first is diversification. “Family-owned companies now seem to be more convinced that instead of bank financing, listing on the exchange would help diversifying the sources of capital available to a business,” Rashid Al Mansoori, CEO of the QSE told OBG. “It would also provide an additional guarantee of good internal governance to prospective lenders due to the high standards of disclosure required of listed companies.”
The second element is structural. Many of Qatar’s family-owned companies were founded in the 1970s, and the first generation of owners are now reaching a point where they are looking to hand over the reins. In many respects, taking a company public is one way of dealing with this challenge, as ownership shares can be divided among family members in the form of stock with those unwilling to take an active role able to remain passive or even sell their stock. It is arguments such as these which the QSE believes will have the most traction with owners: rather than threatening their legacy, listing may actually secure it.
The combination of these two factors may result in a steady flow of further IPOs. According to the QSE, a second family-owned business is also considering listing, taking advantage of the single window between the bourse and the regulator that was launched in March 2016. Still, the reception from the market to IHG’s listing will be a point of study: evidence of strong interest could embolden other family-owned businesses to follow.
Nevertheless, there is a large, untapped market for future listings among family-owned businesses, and if even a small percentage decide to go public, it will serve to diversify the capital markets in a substantial way.
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