Subsequent to unfavorable conditions for Arab and Gulf investors in the US market following the Sept. 11, 2001, events, more and more investors from the region have shifted their funds to European, Asian and local markets in their respective countries. According to available details, Saudi investors withdrew their whopping investments worth over $100 billion. These huge funds have been wisely re-invested in safe havens of European stocks and property acquisitions in the Arab and African countries, notably the UAE, Lebanon and Egypt. But the lion’s share has still returned to Saudi stock market strengthening the local bourse.
The harassment faced by the Arab investors, notably Saudis, at the hands of US agencies coupled with World Trade Organization’s pressure on Gulf states to open up their economies came just as a blessing in disguise which led to faster development of Arab bourses. In terms of market capitalization, the Saudi stock stood at SR1.149 trillion ($306.4 billion) at the close of last year.
The Saudi bourse enjoys a slot in the Top 20 bourses of the world. As regards the number of companies listed on the Saudi stock market, it has 73 and is as yet the largest in the Gulf and the Middle Eastern regions. Noting the listed companies on its bourse, the Kingdom ranks third after Oman and Kuwait.
Stock stability and the rise of Saudi market stems from the fact that the Kingdom enjoys high liquidity owing to inward repatriation of funds by Saudi overseas investors, high oil prices almost all through the past year, impressive financial results and distribution of dividends. Since initial public offerings (IPOs) afford limited investment opportunities, yet all IPOs have been unimaginably oversubscribed. National Company for Cooperative Insurance’s (NCCI) maiden IPO of SR1. 435 billion has been more than 11 times oversubscribed.
The UAE-based mobile phone giant, Ettihad Etisalat’s SR1 billion floatation in Saudi market in October last year was — on record — 51 times oversubscribed. Coming on heels is the reported IPO on Feb. 21 of newly opened Al Bilad Bank in Riyadh.
Saudi Arabia offers investment opportunities in as divergent sectors as energy, transportation and knowledge-based industries, viz., information and communication technologies. The largest chunk of investment has been attracted by gas sector like the Sumitomo Corporation’s recent deal worth $4.5 billion in downstream industries in Rabigh followed by over $3 billion second telecom license to Ettihad Etisalat. One more investment deal involving foreign partners is the joint venture worth $1 billion with Tansee and Acetex of Canada to build a petrochemical plant in the Industrial City of Jubail.
As for outward investment, Saudi Basic Industries Corp. (SABIC) has already acquired the Dutch-based DSM Petrochemicals and is on way to finalizing a 50 percent stake in Pemex, a petrochemicals company of Mexico. Negotiations are also under way to initial two joint venture deals in China with a total worth of between $2 billion and $5 billion.
Given its size, Saudi Arabia needs huge infrastructural investments in the near future both in cash and in terms of technology transfer as joint ventures to further reduce the Kingdom’s dependence on its oil earnings. Saudi stock market achieved an unmatched growth of 85 percent in 2004 and after the listing of Saudi Telecom Company, the number of local investors has meteorically risen from mere 80,000 to 500,000 and possibly crossing one million mark by now.
Impressed with the continued success of Saudi bourse and with newfound interest in stocks across the board in all six Gulf Cooperation Council countries, estimates are that some $9 billion will be raised during 2005 through numerous IPOs in the region.
Ever since its inception in August last year, Bahrain Investors Center has attracted a total of $670 million of foreign investments. According to BIC chief Abduljalil Al-Sanad, 260 companies have been registered at the center during its infant stage. The recently signed Free Trade Agreement with the US will also attract American investors to Bahrain and other states of the region.
Qatar partially opened its stock market to foreigners aimed at attracting their investments. Going by the assertion of Qatari Minister of State for Cabinet Affairs, non-Qataris will be allowed to own up to 25 percent of companies listed on the bourse which has a capitalization of some $40 billion. Hinting toward further liberalization, Qatari energy and trade minister stated, “Our ambition is to fully open the economy.”
Meanwhile, Qatar has announced investment plans worth $108 billion over the next five years also allowing access to foreign investors. Qatar possesses proven gas reserves of more than 900 trillion cubic feet (25 trillion cubic meters), which accounts for 15 percent of the world’s proven reserves and makes Qatar the third largest in the world after Russia and Iran. It is eying to become the top exporter of liquefied natural gas (LNG) and to achieve this goal, Qatari Minister for Energy and Industry, Abdullah ibn Hamad Al-Attiya, announced plans to invest $75 billion on a number of massive projects in oil and gas sectors as also infrastructural projects by 2012.
With a view to attracting investments, Kuwait has allowed foreign banks to operate on its soil. License has already been issued to BNP Paribas. Others waiting for licenses are UK-listed Hong Kong & Shanghai Banking Corporation (HSBC) and Standard Chartered as also US-based Citigroup’s Citibank. With the listing of 18 new companies on the Kuwaiti stock market in December 2004, the total number of listed companies has risen to 125. Of the newly listed 18 companies, eight have gone public through IPOs. The Kuwait-based Global Investment House (GIH) has listed them as Nebras Holding Co., International Resorts Co. and Kuwait Invest Co. (Holding); First Takaful Insurance Co., Commercial Real Estate Co. and Sanam Real Estate Co.; Wethaq Insurance Co. and Raad Stores.
A unique feature of Gulf investment climate is that the region has taken the first step to having a common exchange with linked stock markets. A number of companies from other GCC countries are listed on the Dubai stock market since these are owned by Emirates’ investors. The planned links between the Abu Dhabi Securities Market (ADSM) and other bourses is a positive step which provides prospective local, GCC and expatriate investors with more options to participate in the stock market.