RIYADH, 21 April 2005 — Family-owned companies in oil-rich Saudi Arabia should go public to ensure future growth and avoid bitter succession disputes, a leading Saudi business figure said yesterday.
Fahad Al-Sultan, secretary general of the Saudi Chambers of Commerce and Industry, urged family firms set up during the oil boom of the 1970s to offer shares to the public as part of necessary structural changes. “We need to move such companies toward an institutional and objective manner of management. They have to think seriously about going public,” he told Reuters on the sidelines of a capital market conference in Riyadh. “When most companies move to the second generation (of the family) there is a great chance they will face major difficulties and controversy amongst these families.”
Sultan said 95 percent of Saudi companies are family owned, including 45 of the top 100 companies in the Kingdom. Saudi firms have been reporting impressive profits on the back of a booming economy driven by high oil prices.
Sultan said 70 percent of family businesses are still run by first generation, charismatic leaders. “He drives the company and makes a good profit. But this is not an institutional basis needed in the long term.”
He gave Saudi book and office supply trader Jarir Marketing Co. as an example of a family firm that listed recently and flourished. The firm announced a net profit of SR120 million ($32 million) for 2004, up from 108 million in 2003. He said there would likely be great interest in firms going public from investors on the thriving Saudi bourse, the Arab world’s largest. The market is up more than 30 percent this year, after surging 85 percent in 2004.
Large family-owned businesses include the multinational Olayan Group, which comprises 50 companies engaged in distribution, manufacturing, services and investments.
Analysts say families have been reluctant to go public as they want to keep control of their companies and avoid exposing the operations to outsiders, as required by disclosure rules. One delegate at the conference said the process of going public was long and convoluted, discouraging some owners.
Sultan agreed this was true. “There is still a long bureaucratic process. There is a great need to speed up the procedure.” But he said family firms would sooner or later have to make the leap to the stock market. “We could soon join the World Trade Organization. Family companies will have to go public and institutionalize if they want to compete and prosper at an international level,” he said.