July 11, 2011 7:30 pm

PEX could see more IPOs amidst friendly regulatory environment and growing economy

This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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In Palestine, an investor-friendly framework and a fast-growing economy are encouraging an increasing number of companies to consider listing on the Palestine Exchange (PEX).

“So far this year the Palestinian Al-Quds Index remains the best performing among Arab exchanges and we therefore continue to represent untapped investment potential”, PEX’s chief executive Ahmad Aweidah told mergermarket. As of December 2010, 40 companies were listed on the PEX with a total market capitalization of approximately USD 2.5b.

Palestine is also one of the fastest growing economies in the MENA region with an expected GDP growth of between 10% -12% in the next few years, according to reports by IMF and the World Bank. However, Palestine clearly faces its fare share of political risks. Just last week, the US Congress voted a resolution which would cut off aid to the Palestinian Territories if they go ahead with their plan to seek official United Nations recognition as an independent country in September. Against the backdrop of recession in the West and Arab revolts, such a move would put the Palestinian Authority’s finances under a great deal of pressure.

Upcoming IPOs

Palestinian Commercial Services Company (PCSC), a Palestinian cement company owned by the Palestine Investment Fund (PIF) could launch its IPO by the end of this year, Aweidah said. “It is very easy for these companies to list, the bureaucracy is limited and the procedure rather easy”, he added. PCSC intends to list between 15% and 25% of its shares and is hoping to go ahead with the listing by the end of this year, according to a report on this new service.

Another upcoming IPO candidate is The Arab Palestinian Investment Company (APIC), Aweidah said. APIC will likely list on PEX in the last quarter of this year or the first quarter of 2012, APIC’s chief investment officer Ahmad Joudeh said, as reported by this news service.

“The IPO environment in Palestine is very positive although any stellar growth in the PEX is most likely to be tied up with political change in the region,” said Andrew Tarbuck, Partner in the Dubai office of international law firm Latham & Watkins, and transaction counsel to the Wataniya Palestine (PSE: Watiniya Mobile) IPO. Last December, Wataniya listed 15% of its shares to raise USD 78m, 1.5 times more than the USD 50.3m it had planned.

“The exchange itself is progressive and clearly dynamic and that will help in providing a competitive and well-run market,” Tarbuk said. He described exchange staff as “very approachable, flexible and good to work with” and the legal and regulatory environment as “relatively thin but not dissimilar to other frontier market”

However, he said he was not aware of any PEX IPOs in the pipeline and added: “The CEO of the PEX is very open and optimistic about potential issuers and last year mentioned Club Deportivo Palestino football team, which plays in the premier league in Chile and also the PEX itself.

Foreign investors and improved regulatory environment

A greater number of foreign investors are buying stocks on the exchange, Aweidah said. “There is a friendly investment environment as well as a legal and regulatory framework which is conducive to attracting foreign investors to the stock exchange”, he added.

The PEX does not tax capital gain and income on the revenues generated out of trading It has also been reinforcing its infrastructure and trading systems for the past year. In 2010 USD 1.5m were invested in the technological infrastructure, according to PEX reports.

Tarbuck commented that the Wataniya IPO involved a healthy proportion of retail investors possibly due to the Palestinian diaspora rallying to support their country and the development of its economy by investing in Palestinian corporates. “When we were on the road with Wataniya it was clear there were several Palestinian individuals in decision-making positions in investment houses in the MENA region who are naturally drawn to the stock,” he said.

Speculative investors are willing to take the risk because they believe that, in the future, the Palestinian economy will grow rapidly as political and sovereignty issues progress towards resolution, he added.

Foreigners invest strategically rather than tactically Amman-based Capital Invest CEO Omar Alwir, said. “[Palestine] is highly volatile as a market, but there are a lot of good investment opportunities, good companies that are well managed that generate significant cash flow,” he told this news service.

Alwir cited Palestine Telecommunications Company (PSE: PALTEL) and Palestine Development and Investment Company (PSE: PADICO) as examples of companies that are very well managed and attractive for foreign investors. “You basically have to discount for” the political situation, he said.

Bank of Palestine’s (BoP) CEO, Hashim Shawa said that foreign shareholders own a large proportion of the bank’s shares. As of June 2011, foreign individual investors own 14.9% of the BoP’s shares and foreign corporate investors own 26.3% according to the bank’s published reports.

Five companies have listed on the PEX this year: Al-Aqariya Trading Investment (AQARIYA), Al Shark Electrode (ELECTRODE), Global United Insurance (GUI), Palestine Mortgage & Housing Corporation (PMHC), and Al- Takaful Palestinian Insurance (TIC).

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