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• 
  Bigger is better for construction

  23 December 2024

  

   

  Nothing encapsulates a buoyant construction market better than signing a contract to complete the world’s tallest tower. That happened on 2 October 2024, when Saudi Binladin Group (SBG) was awarded a $2bn contract to complete the 1,000-metre-plus Jeddah Tower.

  The award was significant in many ways. It was a revival of the tower project, which has been on hold since 2018, and it was also a comeback for SBG after years of financial stress that had led many in the market to think it would never win another major construction deal.

  On a macro level, the construction deal confirmed that the region is home to the world’s most daring and challenging construction projects.

  More importantly, these projects are more than just aspirations; they are real projects that are being built.

  Biggest contracts

  While Jeddah Tower was the most symbolic contract award in 2024, at $2bn, it was not the largest. That accolade went to the Italian contractor WeBuild when it was awarded a $4.7bn contract for the construction of the three dams at the Trojena mountain resort at Neom in January. 

  Like Jeddah Tower, the project is a challenging one. Time pressure is a key issue. Trojena has been selected to host the 2029 Asian Winter Games, and the reservoir will be used to make the snow for the event. This means the dams must be completed and the reservoir filled well in advance.  

  The project is also technically complex. The main dam will have a height of 145 metres and will be 475 metres long at its crest. Inside the reservoir there will be a kidney-shaped dam that will house an attraction known as the Enchanted Forest, which will be connected to the rest of the Trojena development by an underwater tunnel.

  WeBuild’s involvement also highlighted that international contractors, after sitting on the sidelines for a number of years, are playing an active role in the Saudi construction market. 

  One market segment that has attracted strong interest is building stadiums, which like Trojena have to be completed for football tournaments with fixed dates: the 2027 Asian Games and the 2034 Fifa World Cup. 

  In October, Spain’s FCC in joint venture with the local Nesma & Partners secured a $1bn contract to build the Prince Mohammed Bin Salman Stadium at the Qiddiya City development on the outskirts of Riyadh.

  Earlier in the year, a joint venture of Belgian contractor Besix and the local Albawani was awarded the contract to build the Aramco football stadium in Al-Khobar, and Beijing-headquartered China Railway Construction Corporation and local contractor Sama Construction for Trading & Contracting won the contract to construct the Jeddah Central stadium project.

  Outside of Saudi Arabia, there were only two contract awards valued at over $1bn and both were in the UAE emirate of Abu Dhabi. 

  In January, a $1.2bn contract to complete phases two and four at the Saadiyat Lagoons project was awarded to a joint venture of two Abu Dhabi-based contractors, Trojan Construction Group and Arabian Construction Company. 

  The other $1bn-plus deal was a $1.4bn contract to complete dredging and marine works for the Nisi Island development, which was awarded to the local NMDC Group. 

  These deals were highlights in what was a strong year for the rest of the market. In total, according to regional projects tracker MEED Projects, there were $67.9bn of construction contract awards by the end of October 2024. If the trajectory is maintained until the end of the year, it will result in about $81.4bn of awards, which is lower than the $96.9bn of awards recorded in 2023, but still higher than any of the eight years from 2015 to 2022. 

  Market challenges

  Replicating the record-breaking performance of 2023 was never going to be easy, especially after Riyadh warned that its spending would be more targeted at the end of 2023. Those comments, made by the finance minister, set the tone for 2024, which proved to be a year with plenty of contract awards, but without the apparent carefree attitude to spending that characterised 2023. 

  The other challenge with following on from a bumper year is supply chain constraints. With full order books, contractors and suppliers have lost some of the appetite that they had for new work in 2023. The result of this for project clients has been difficulties in attracting enough bidders, and when bids are submitted, the offers are often not competitively priced.

  These challenges have been felt most acutely by projects in the remote regions of Saudi Arabia. The issue is so prevalent at Neom that there is now a phenomenon known as ‘Neom inflation’, which implies that the $500bn gigaproject in the remote northwestern corner of the kingdom has its own unique inflation rate.

  These regional issues have added to the international supply chain constraints that have been felt since the Covid-19 pandemic and, more recently, during the conflict in Gaza and threats to shipping lanes in the Red Sea.

  Addressing challenges

  The market has responded to these challenges. In Saudi Arabia, the Public Investment Fund (PIF) invested in four of the kingdom’s largest general contractors in 2023. Then, in February 2024, the sovereign wealth vehicle announced that it had, together with the National Infrastructure Fund, introduced a new contractor financing programme, designed to strengthen the construction sector’s finances. 

  The programme aims to provide contractors with finance solutions to help improve their cash flows.

  Developers have also been improving their contract terms and, crucially, working to ensure payments are processed on time – a move that should also help improve contractor cash flows. 

  The PIF-backed development companies have also been actively working on attracting new companies to Saudi Arabia. They have been travelling the world on roadshows to attract more contractors and suppliers to projects in the kingdom. 

  These roadshows have been highlighting the volume and scale of the opportunities in Saudi Arabia, and have shown that the kingdom offers long-term opportunities for companies that come and invest in the market. 

  In the UAE, Abu Dhabi has invested heavily in its construction supply chain. With its government-controlled investment vehicles and a series of interconnected mergers and acquisitions, Abu Dhabi and its ruling family now own the emirate’s key contracting companies and the suppliers of vital raw materials such as cement and steel. 

  These national champions shield Abu Dhabi from many, but not all, supply chain challenges that have impacted projects in other markets.

  Meanwhile, in Dubai, where the real estate market is driving construction, private sector developers are courting contractors to work on their projects.

  As private entities, they are not bound by the procurement regulations that government or government-controlled developers have, so they have been offering directly negotiated deals to help guarantee that their projects are delivered on time.

   

  2025 outlook

  Unless the market dynamics shift dramatically, the market will likely face many of the same challenges in 2025. 

  One of the overriding fears is a sharp slowdown in project spending in Saudi Arabia. This has happened before and is a valid concern, and the market has already shown signs of plateauing in some areas. 

  This is most noticeable when contract awards for the five official gigaprojects – Diriyah, Neom, Qiddiya, Red Sea Global and Roshn –  are examined. After a sharp ramp-up in awards from 2020 to 2023, the pace of contract awards levelled off in 2024, which reflects budgetary concerns within the development companies and the PIF, and the market’s ability to take on such large volumes of new work. 

  With budgets under pressure, developers in Saudi Arabia are increasingly looking for investment to help fund their projects. The success of these efforts will determine how buoyant the market in the kingdom remains over the long term.  

  Even if investment comes in, it will take time, which means there will likely be a degree of conservatism from development companies in 2025. This was signalled in mid-November, when Neom, while announcing the exit of CEO Nadhmi Al-Nasr and the appointment of Aiman Al-Mudaifer as acting CEO, said: “As Neom enters a new phase of delivery, this new leadership will ensure operational continuity, agility and efficiency to match the overall vision and objectives of the project.”

  While there may be a pause in spending on some of the Saudi gigaprojects, other schemes continue to underpin the performance of the construction market. 

  Oil prices remain supportive of government spending on projects across the Gulf, and for the private sector, in markets such as the UAE, real estate projects continue to move into construction as developers rush to deliver units to investors and capitalise on the ongoing strength of the property market. 

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  Colin Foreman
• 
  Regional stock market listings near record level

  23 December 2024

  

   

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  This report also includes: Gulf debt markets make their mark

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  The Middle East and North Africa (Mena) region’s capital markets got off to a fairly strong start in 2024, with two sizeable listings on the Saudi Stock Exchange (Tadawul) in January. Broadcaster MBC Group’s listing on 8 January raised $222m, while Middle East Pharmaceutical Industries Company (Avalon Pharma) followed up with a $131m share sale on 24 January.

  The year ended with a far bigger bang, however, with several multibillion-dollar listings in the UAE and Oman in the final quarter. Among them, grocery chain Lulu Group International raised $1.7bn on the Abu Dhabi Securities Exchange (ADX) in early November. The following month, food delivery and quick commerce business Talabat Middle East raised $2bn when it launched on the Dubai Financial Market (DFM).

  Between those bookends to the year there were dozens of other initial public offerings (IPOs) on the region’s stock markets. According to data compiled by EY, there were 29 new listings in the opening nine months of the year, the same as in the equivalent period of 2023 and only just behind the 31 IPOs in 2022.

  The final quarter of the year has been the busiest. MEED’s analysis points to the tally reaching 49 IPOs as of mid-December, with several more listings still on the cards for the closing weeks of the year. As such, the previous record for the most IPOs in the region in a year – the 51 seen in 2022 – could well be surpassed.

  As has been the case for many years, the GCC bourses have been the dominant focus of activity, with Saudi Arabia hosting 13 IPOs on the main Tadawul market and 24 on the smaller Nomu bourse.

  The UAE has had a further seven, with four on the ADX and three on the DFM, while the Kuwait and Muscat exchanges have had one apiece.

  Beyond the Gulf, activity has been more limited, but some markets that were dormant for several years have reawakened. There have been two IPOs in Egypt – Act Financial and United Bank of Egypt – and one on the Algiers Stock Exchange, where Credit Populaire d’Algerie’s listing in March was the first in eight years.

  Fluctuating activity

  IPO activity has ebbed and flowed through the year. According to EY, there were 10 IPOs in the first quarter, the same as in the equivalent period the year before, although this did not include the Algiers listing.

  Saudi Arabia saw nine listings in Q1 2024, raising a combined $724m, the most significant being Modern Mills, which raised $314m. That was overshadowed by Parkin Company, however, which raised $429m by listing on the DFM.

  In the second quarter, a further 14 companies came to market, raising $2.6bn between them. This was slightly up on the 13 IPOs in Q2 2023 and the proceeds were also up 45%.

  Of the total, 11 were in Saudi Arabia, with five on the Tadawul and six on the Nomu. The biggest was Dr Soliman Abdul Kader Fakeeh Hospital Company at $764m, followed by Alef Education Consultancy on the ADX at $515m.

  Notably, Kuwait Boursa saw its first listing in two years, with Beyout Investment Group coming to the market in June. The only other IPO outside Saudi Arabia was retailer Spinneys, which listed on the DFM, raising $375m.

  Activity slowed in the third quarter, with just five new listings, which raised $930m between them. Almost all of this was accounted for by the listing of NMDC Energy on the ADX, which involved a raise of $877m – the largest of the year at the time, although that figure was overtaken several times in the final quarter.

  Saudi Arabia saw three more listings on the Nomu market in Q3, raising $27m in total. During this period, Act Financial also made its market debut, becoming the first new listing on Egyptian Exchange (EGX) in two years.

  At the end of Q3, EY estimated that a further 11 companies were planning to list on exchanges in the Mena region before the year was out.

  Not all of these listings have gone ahead, but a number of major IPOs have been completed, including OQ Exploration & Production on the Muscat Stock Exchange (MSX), which raised $2bn on 28 October. It was followed by the IPOs of hypermarket chain Lulu Group and food delivery operator Talabat over the next two months.

  In addition, there have been five more listings on the Tadawul, including Al-Majed Oud Company and Arabian Mills for Food Products Company, and nine more on the Nomu market.

  Other deals have been announced but have so far yet to be completed. These included Oman’s OQ Base Industries, which in November announced plans to sell up to 49% of its shares and seek a listing on the MSX by mid-December.

  The huge listings in the fourth quarter of 2024 mean that the downward trajectory of 2023 has been turned around, even if the heights of 2022’s fundraisings have not quite been matched. 

  After the $22bn raised in 2022, the total fell to $10.7bn in 2023. In 2024, the total reached about $12.5bn by 10 December, including $8bn raised in the final quarter.

  

  Diverging indices

  The wider market performance of regional bourses has been decidedly mixed in 2024. 

  There have been a handful of standout performers across the region. The Moroccan All Shares Index (MASI), for example, was up 22.7% between January and the end of November, with Egypt’s EGX 30 Index not far behind at 21.5%, according to data compiled by Kuwait’s Kamco Invest.

  In the Gulf region, Dubai’s DFM General Index was up 19.4% over the same period, while Tunisia’s TunIndex also saw a creditable 12.7% gain.

  In contrast, Riyadh’s Tadawul All-Share Index (Tasi), the FTSE ADX General Index, Qatar’s QE20 Index and Jordan’s ASE Index all saw their values fall in the first 11 months, with drops of between 1% and 4%.

  Other major bourses saw more limited gains, with the Kuwait All Share Index posting a rise of 6.3%, while the Bahrain All Share Index was up 3.1% and Oman’s MGX 30 Index gained just 1.1%.

  It is hard to see any clear pattern in these results. To date, five regional bourses have posted a better overall performance in 2024, compared to 2023, but six are faring worse.

  This fits in with the mixed performances seen on the global level. The MSCI World Index gained more than 20% in the first 11 months of the year, helped by a strong performance in the US, where the S&P 500 rose by 26.5%. In contrast, the MSCI Emerging Markets Index was up just 5.4% over the same period.

  The buoyant market for regional IPOs suggests that many companies and investors feel relatively optimistic, however.

  A second IPO is due to take place in Algeria before the end of the year, with the listing of Banque de Developpement Local, and more are pencilled in for 2025. 

  In neighbouring Morocco, irrigation specialist CMGP Group is also aiming for a $110m IPO on the Casablanca Stock Exchange in the near future.

  However, Gulf markets are likely to continue to dominate in the near future. At least four more listings are planned in Saudi Arabia in the closing weeks of 2024 and the start of 2025, and many more are sure to follow. 

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  Main image: Food delivery business Talabat raised $2bn with its IPO on the Dubai Financial Market in December. Credit: WAM

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  Dominic Dudley