VINEETA TAN writes that the GCC is reaping the rewards from the growth of Islamic REITs as the region’s IPO market hit a five-year record-high in the first quarter bolstered by this relatively new asset class.
In the first three months of the year, the number of IPOs in the GCC swelled by 10-fold from just one the year before; one-fifth of the 10 IPO listings in the first quarter this year were Shariah compliant REITs. Al Jazira Mawten REIT raised US$31 million from its IPO of 11.8 million shares on Tadawul while ENBD REIT listed 94.6 million shares on NASDAQ Dubai, securing US$105 million from the exercise which happened to be the first IPO on the Dubai exchange in almost three years.
And the number of Islamic REIT IPOs continues to grow, driven in particular by Saudi investment managers leveraging on new REIT regulations introduced last year. In the weeks after the first quarter closed, two more REITs joined the Saudi exchange: Jadwa REIT Alharamain Fund and Taleem REIT Fund, raising SAR660 million (US$175.88 million) and SAR85.5 million (US$22.78 million) respectively.
Saudi Arabia is also largely responsible for the phenomenal burst in regional IPO activity: out of the 10 IPOs, the Kingdom listed eight — seven of which were offered on the NOMU Parallel Market, an alternative equity market launched early this year. NOMU, the first of its kind in the Arab Gulf, was designed to facilitate the listing of smaller cap companies (SAR10 million (US$2.66 million) as opposed to SAR100 million (US$26.64 million) required of the main market) — a much-needed move to diversify away from hydrocarbons and spur the expansion of the Kingdom’s SME sector and one which also presented opportunities for Islamic finance. Four out of the seven companies on NOMU fall into the SME category.
“Looking at both the Musharakah [program] and NOMU together, we can see the strategic direction behind government policy in trying to develop a path for SMEs that allows them to progress from a small-scale start-up to a listed entity,” Jadwa Investment previously noted. The Musharakah program is a government initiative, part of a SAR4 billion (US$1.07 billion) fund, to develop a system where capital requirements of SMEs are funded on a Shariah compliant basis.
SMEs account for about 21% of Saudi Arabia’s non-oil GDP, less than half of the 46% average among the 15 largest global economies. Lifting SMEs’ economic contribution in line with its global peers could add an additional SAR1.1 trillion (US$293.13 billion) to Saudi’s GDP, according to the Small and Medium Enterprise Authority.
“Although both the Musharakah program and NOMU are in the early stages of development, over time they could greatly increase the number of SMEs, which in turn, will ultimately help boost economic growth and provide more highly skilled jobs for locally-sourced labor,” said Jadwa Investment.