RIYADH, 4 January 2005 — A total of 389,000 applicants had subscribed to 10.3 million shares for SR2.133 billion in the initial public offering (IPO) by the National Company for Cooperative Insurance (NCCI) up to Saturday. The IPO closed at 8.30 p.m. last night.

Giving this information to Arab News, an official of the Public Investment Fund (PIF), which owns five million shares of NCCI, quoted Minister of Finance Dr. Ibrahim Al-Assaf as saying that the shares had been oversubscribed by one and a half times. The other shareholders of the government-owned company are the General Organization for Social Insurance (GOSI) and Pension Fund, which own one million shares each.

A total of seven million shares were on offer at SR205 per share. The target was to raise SR1.435 billion by selling 70 percent (seven million) of its shares to Saudis. However, by Saturday, a total of SR2.133 billion had been raised through flotation which was managed by the Saudi British Bank (SABB) in collaboration with HSBC.

Describing the response as positive, the official said a novel feature of the flotation this time was the facility to download share applications on the Internet. This enabled the public to conduct transactions online without having to queue up anywhere.

In response to a question, he pointed out that the government has decided to sell off its shares in public sector undertakings to raise funds to liquidate its debts and also channel part of the investments in key sectors to be identified by the ministerial council and the Supreme Economic Council.

PIF also has a 70 percent stake in the Saudi Basic Industries Corporation (SABIC) and in more than 50 other government entities. He said the Kingdom’s privatization program covers all of them under a phased program.

Motasher T. Al-Murshed, a financial consultant, told Arab News that the response to NCCI’s IPO started gaining momentum only during the last three days following the fatwa issued by Sheikh Al-Obeikan and subsequent endorsement by Sheikh Al-Sadlan regarding participation in its IPO.

“Till then, the investors were reluctant to come forward as they were not sure whether the company’s product was Shariah-compatible. The fatwa paved the way for a last-minute rush by investors.”

Al-Murshed said he anticipates a closing figure of SR3.5 billion to SR4 billion with the IPO oversubscribed 2.7 times. The number of applicants may also increase to around 600,000. “NCCI’s IPO raises a fundamental question that should engage the attention of the Capital Market Authority (CMA). Till the question is addressed, future IPOs of government-owned entities should be on hold,” he observed.

According to Al-Murshed, who has extensive experience as a financial consultant, the government should define the norms for evaluating the share price listed for IPO. “When we compare the share prices offered for the IPOs of NCCI and Saudi Telecom Company (STC), for example, there is a clear discrepancy between the share prices of the two companies.”

He explained that while the face value of an NCCI share was fixed at SR205, that of the STC was SR175, when everybody knows that the STC with a market capitalization of SR15 billion is a much bigger player than NCCI. Yet, the NCCI share had a higher face value than that of the STC. This has resulted in big investors cornering the shares leaving the small and medium ones at a severe disadvantage, he added.