More firms plan IPO shares for staff

A growing number of Middle Eastern companies going public are planning to offer preferential share allocations in their IPO to their management and employees, according to a study just released by GulfTalent, the Middle East's leading recruitment website for mid-level and senior professionals.

Their funding marks a major departure from the traditional employee compensation practices in the region which generally exclude any form of employee stock ownership.

With over 100 of the region's most prominent companies planning to go public over the next two years, the new trend could have wide-reaching implications for employees, shareholders and regulators.

GulfTalent's report, entitled "Employee Participation in Middle East IPO's" was based on interviews with a representative sample of CFO's, HR Managers, investment banking professionals and regulatory authorities across the GCC. According to the study, the recent surge in IPO's across the Gulf and Middle East markets and the heavy oversubscription of these offerings has created an opportunity for companies to reward their employees with a preferential allocation of shares in the IPO.

Under this, employees would subscribe to the shares with their own funds and at the same price as other retail investors, except that they would have a certain number of shares reserved for them.

Given the current pattern of heavy oversubscription of IPO's, such an allocation would mean that while ordinary investors may receive just 1-2 percent of the shares they bid for, the company's own employees can potentially receive all or most of the shares they can afford to purchase.

According to GulfTalent, with share prices typically surging on debut, such an allocation in itself would represent a significant reward to the employees, at no cost to the company or its shareholders - since the employees would be paying the same price as any other investor in the market.

A common practice in the developed markets of Europe and North America, and increasingly being practiced in emerging markets such as India, IPO allocation to employees has been virtually non-existent in the Gulf so far. Of the 20 recent or planned IPO's surveyed by GulfTalent only one had given an employee allocation or had confirmed plans to do so.