JEDDAH, 6 January 2005 — The initial public offering (IPO) of Saudi Arabia’s largest insurance company was oversubscribed 11.5 times, Finance Minister Dr. Ibrahim Al-Assaf said yesterday.
The state-owned National Company for Cooperative Insurance (NCCI) offered 70 percent of its shares over a two-week period from Dec. 21 at SR205 ($54.70) each.
Preliminary results of the subscription, which was valued at SR1.435 billion ($410 million), has reached SR16.566 billion ($4.4 billion), Assaf said in a statement carried by the official SPA news agency.
The IPO was “oversubscribed 11.5 times and the number of subscribers reached 807,583” Saudi nationals, he said. “The excess (subscription) money will be returned to investors through banks,” he added.
Dr. Nahed Taher, senior economist at the National Commercial Bank told Arab News that “the reason for low subscription compared to other IPOs was the high price of NCCI share offering. The price of SR205 is expensive and being an insurance company people were also reluctant to invest.”
She also added that NCCI had suffered a loss three years ago, so investors were not sure about the prospects of the company.
However, Dr. Taher said that NCCI has a lot of cash at its disposal and it is one of the most profitable companies in the finance sector in the Kingdom. It will be well penetrated in the economy as the company has various insurance policies with government as well as private sector.
Basil M. Al-Ghalayini, CEO of BMG Financial Advisers said that it was a good indication that the market was accepting insurance companies, despite the sensitivity of the subject.
“As more insurance companies are going to enter the market in future after the approval of the Saudi Arabian Monetary Agency, companies have to offer 25 percent to 40 percent of shares at par value. In no time the market will swallow these IPOs.” He added that it will also trigger shorter offering period, maybe one week rather that two to three weeks as at present.
NCCI is half owned by the Public Investment Fund (PIF), with the General Organization for Social Insurance and Pension Fund each holding 25 percent. The IPO included PIF’s five million shares and one million from each of the two other shareholders.
NCCI Executive Chairman Mussa Al-Rubaiaan said when the IPO was launched the company was not expecting it to be oversubscribed, as was the case with the IPOs of Saudi Telecom and Etisalat Consortium, the new Saudi mobile phone company.
The latter’s IPO in October was 51 times oversubscribed, reaching SR51 billion ($13.6 billion). Its shares increased five-fold in value on the first day of trading on the local stock market.
NCCI is the first insurance company to be listed on the stock market in the Kingdom. “Insurance is a matter of controversy among (Islamic) scholars,” Rubaiaan had said when asked about reservations voiced by members of the public over the IPO. “The basic law in the Kingdom follows Islamic Shariah, and this company abides by the law of this country,” he said.
Dr. Khan H. Zahid, chief economist and vice president at Riyad Bank, said that initially when the NCCI’s IPO was launched the response was very slow. It picked up during the last three days after a fatwa was issued regarding participation in its IPO.
