JEDDAH, 3 November 2004 — The Council of Ministers has formally approved the launch of SR3 billion Al-Bilad Bank, Saudi Arabia’s 11th commercial bank, paving the way for an initial public offering of shares.

The Cabinet meeting on Monday night approved the setting up of Al-Bilad, an Islamic bank created through the merger of eight money exchangers, the Saudi Press Agency reported.

“The Cabinet approved a proposal made by the commerce and industry minister on licensing the establishment of a Saudi joint stock company named Al-Bilad Bank,” the agency said.

Al-Bilad is expected to float 30 million shares worth SR1.5 billion ($400 million), or half the new bank’s capital, at the rate of SR50 per share within a month after a royal decree licensing the bank.

On June 7, the Cabinet gave the initial approval to launch the bank. The move came after the government licensed three major international banks - Deutsche Bank of Germany, BNP Paribas Bank of France and J.P. Morgan Chase Bank of the United States - to open branches in the Kingdom.

Saudi Arabia, the world’s largest oil supplier and one of the biggest economies in the Middle East, has the ability to absorb more banks.

Al-Bilad’s founders will have a 50 percent stake in the bank. Muhammad & Abdullah Ibrahim Al-Subaie Company holds the lion’s share of 42 percent in Al-Bilad Bank while Al-Muqairen Money Exchange holds 18 percent, Al-Rajhi Commercial Foreign Exchange 16 percent, and Al-Rajhi Trading Est. 14 percent.

Other partners Muhammad Saleh Sairafi Est. will have a five percent stake in the bank while Injaz Money Exchange (Yousuf Abdul Wahab Niamatullah Company) will hold three percent, Abdul Mohsen Saleh Al-Amri Est. and Ali Hazza & Partners for Trade and Money Exchange one percent each, press reports said.

Ibrahim Al-Subaie, a member of the constituent committee, said the timing of Al- Bilad’s IPO would be suitable to market need to absorb this large economic entity.

“Al-Bilad is going to make big successes, beginning from IPO to gaining good profits,” Al-Eqtisadiah business daily quoted him as saying.

Subaie said a working committee has been set up to prepare for the public offering, adding that all Saudi banks would participate in the process. He said he expected Al-Bilad IPO to be oversubscribed 20 times. “The success of Etisalat IPO reflects liquidity of Saudis and return of huge funds from abroad,” he pointed out.

With a weeklong Eid Al-Fitr holiday later this month and another high-profile Saudi IPO also imminent, Al-Bilad may wait until early 2005 to launch its own offering, bankers say.

“It’s difficult to believe that it will come to the market before the new year,” one senior banker in the Kingdom said.

Last month’s SR1 billion offering of shares in Etisalat Consortium, which was 50 times oversubscribed, showed a hunger for shares in Saudi Arabia, where government coffers are bursting with windfall oil revenues and many investors are hunting for opportunities.

The official Saudi share index, by far the Arab world’s largest in terms of market capitalization, is up more than 60 percent this year, building on a 76 percent surge in 2003.

But insurance firm NCCI is planning a share offering in late November or early December and any overlap would cut subscriptions to either NCCI or Al-Bilad.

Abdul Rahman Al-Ruwaitie, economic adviser to the bank, said Al-Bilad would open a new era of banking in the country, adding that it would support the private sector by offering new services and Islamic banking products.

Based in Riyadh, Al-Bilad will have branches in various parts of the Kingdom and will make use of modern technology and trained personnel to extend quality services. In the first phase it will have 30 to 40 branches.

“The new bank will operate on the basis of Islamic banking principles,” Dr. Yousuf Niamatullah of Injaz said, adding that it would also provide investment services.

The activities of the merging money exchangers will be stopped and they will be stripped of their commercial registrations, the Cabinet said, adding that their outlets will be closed soon after the formation of the new company. The new company will pay damages for the cancellation of contracts with the merged firms and settle all entitlements of staff in accordance with the Labor Law.

The founders have set up an experts committee to recruit qualified and experienced staff for the new bank. Saudi Arabia has 10 commercial banks with assets exceeding $100 billion, in addition to a branch of the Bahrain-based Gulf International Bank (GIB).