Firms look to IPOs as Kuwait's economic recovery continues

In late March 2015 Kuwait’s parliament voted to amend the ownership structure of the Kuwait Stock Exchange (KSE), with the goal of listing the firm in an initial public offering (IPO) before the end of the year. Under the plan, which as of August 2015 the government had yet to finalise and confirm, around 50% of the bourse would be sold to Kuwaiti citizens, between 6% and 24% would be owned by various state entities, and the remaining 26-44% would go to a company with prior experience operating stock exchanges. The vote was the latest development in a plan to float the KSE that has been in place since the government passed the Capital Markets Law (CML) in early 2010.

LONG TIME COMING: Led by the Capital Markets Authority (CMA), which was created as a result of the CML, the blueprint for listing the bourse has undergone a variety of changes in recent years. In April 2014 the regulator took a major step forward when it formally converted the KSE into an independent private company. The privatisation, which had been under way since at least 2011, was a necessary precursor to listing the bourse. In 2012 the CMA signed an agreement with HSBC to advise on the IPO.

MOVING FORWARD: The momentum that the process of publicly listing the KSE appears to be gathering is widely considered to be a sign of steadily improving market conditions for IPOs in Kuwait. While a number of companies have announced listings over the past few years, few have come to fruition – the most recent was Al Imtiaz Investment Group’s successful listing in April 2011. Since 2012, however, a number of companies have announced fresh plans to float shares, including a handful of state-owned firms.

Local entities that have either formally announced an imminent listing or are rumoured to be considering include the Kuwait Investment Company and the Kuwaiti arm of Dow Chemical. Given these planned listings, not to mention the growing potential for the state to float shares of the entities it owns in the coming years, many local investors are looking forward to a steady stream of new activity on the KSE for the foreseeable future.

One of the major potential sources of upcoming listings is the government itself, which recently passed the Kuwait Development Plan, a five-year infrastructure programme that will likely require a considerable amount of new financing. Given the steep drop in the price of oil since the middle of 2014, the state is widely expected to move forward with a handful of new listings in the coming years. In late 2013 the government began this process by floating 50% of the Al Zour Independent Water and Power plant on the KSE. The shares, which were fully subscribed, will be distributed once the plant is operational.

NEW ACTIVITY: In mid-December 2014 the Kuwait Telecommunications Company – the country’s second-largest mobile telecoms operator by subscribers and a subsidiary of Saudi Telecom – began trading on the KSE, more than six years after its IPO. In September 2008, on the eve of the financial downturn, the firm (operating under its VIVA brand) had sold half of its shares, worth KD25m ($86.1m), on the KSE to Kuwaiti investors. In the aftermath of the crisis, however, VIVA delayed listing the shares on the bourse.

In October 2014 Mezzan Holding announced it had applied to the CMA to sell 88.95m shares – about 30% of the company – in an IPO on the bourse. Established in the 1940s, Mezzan is among the largest food manufacturers in the Gulf, producing meat products, rice, snacks, beverages and other consumer products, and distributing more than 350 foreign brands throughout the Middle East. In 2014 it reported net profits of KD16.1m ($55.5m), up nearly 23% on the previous year. In April 2015 Mezzan received the CMA’s approval to proceed with the IPO and concluded the offering on May 12. Two times oversubscribed, the placement generated strong demand from local retail investors, private companies and global institutional investors, according to local press reports. The company’s shares then listed on the KSE on June 11, 2015.