JEDDAH, 6 October 2005 — The Saudi stock market seems to be undergoing a major correction as its key index tumbled over 400 points yesterday. The Tadawul All Share Index (TASI) closed at 14,297.68, down by 420.14 points or 2.85 percent.
Out of 77 stocks traded only one was higher while 76 were down.
The Industrial Index dropped 1,140.11 points at 37,305.97 as shares of all companies declined yesterday.
Saudi Cable Co., Al Mawashi Al Mukairish United Co., and Saudi Land Transport Co. shares plunged by 10 percent to close at SR285.75, SR110.25 and SR360, respectively.
Shares of the petrochemical giant Saudi Basic Industries Corp. fell by 2.06 percent at SR1,525.
The Banking Index also dropped by 497.69 points at 32,388.55 as shares of all the banks dropped yesterday.
Al-Rajhi Banking & Investment Corp. shares fell by 1.34 percent at SR1,835 despite Standard & Poor’s Ratings Services said in Paris yesterday that it assigned its “A-/A-2” long- and short-term counterparty credit ratings to Al-Rajhi Banking & Investment Corp. The outlook is stable.
The ratings on Al-Rajhi reflect the bank’s healthy retail customer franchise, very high profitability, lower-than-peers concentrations in loans and deposits, and strong capitalization. The ratings are constrained by limited business and geographic diversification, increasing loan leverage and competition, and the bank’s vulnerability to shocks in real estate and capital markets.
Al-Rajhi is one of the most profitable banks in the Gulf.
The stellar financial performance of the bank in the first half of 2005 reflects a rapid increase in business volumes supported by a robust external environment.
Standard & Poor’s expects that Al-Rajhi will retain its strong financial profile and leading commercial position in retail banking, despite increasing competition.
“The ratings could be raised if the bank’s expansion strategy in Asia is successful, business diversification out of retail lending is achieved, and the funding mix is widened to reduce maturity mismatches,” said Standard & Poor’s credit analyst Anouar Hassoune. “The future evolution of the ratings will also largely depend on the macroeconomic environment in Saudi Arabia,” Hassoune added.
The ratings may come under pressure, however, if asset quality or credit concentration drifts, or if capitalization ratios weaken following, for example, a sharp correction in the prices of domestic real estate or financial assets.
Saudi Telecom Co. and Etihad Etisalat shares also dived by 2.52 percent at SR890 and by 4.54 percent at SR593.75, respectively.
Saudi Electricity Co. shares fell by 4.59 percent at SR135.
Meanwhile, the Commerce and Industry Ministry and the Capital Market Authority (CMA) are studying prospects of reducing the nominal value of Saudi stocks from SR50 to SR10 in order to accommodate the growing liquidity of Saudis, Al-Madinah Arabic daily reported yesterday. Quoting banking experts, the paper estimated total funds, which are not invested, at more than SR500 billion.
Dr. Abdul Rahman Al-Zamil, chairman of Zamil Industrial Investment Company, emphasized the need for reducing the value of shares to attract more investors. He favored further reduction of the nominal value to SR1, adding that it would help bring back Saudi funds from abroad.
Mazen Batterjee, deputy chairman of the Jeddah Chamber of Commerce and Industry, said the division of share value would encourage more Saudis to invest their money in the Saudi bourse.