RIYADH, 12 February 2007 — The year 2006 was not a pleasant year for investors in the Saudi stock market. Two market crashes, some disappointing initial public offerings (IPOs) and lost confidence in the market — all these factors affected the investors behavior negatively, despite strong economic growth, budget revenues and surpluses.
Previously, Riyad Bank looked at the performances of IPOs in the first half of 2006 to see the impact of the first market correction. The table below shows the behavior of the IPOs after the second market crash. As we see, price appreciations — after listing the companies in the market — has become smaller than it used to be. In 2005, we had huge price appreciations, for example, more than 15 times in the case of Bank Albilad and more than 12 times in the case of the Yanbu National Petrochemical Company (YANSAB).
Among the recent spate of IPOs, the company that had the most price appreciation after listing was Emaar (King Abdullah Economic City). This was the first one in the second half of 2006, and it appreciated 3 times. The IPO market turned more sour after that. For the first time, we saw an opening price less than the offering price for 2 companies, from two different sectors.
The first was Saudi International Petrochemical Company (Sipchem), from the industrial sector, which was 20 percent below its offer price, and the other one was Fawaz Abdulaziz Alhokair & Company, from the services sector, which also started trading at a 20 percent discount.
The two companies were listed in October and November 2006, when the second market crash was taking place.
To have a better image of the second market crash, we can compare the prices of the newly listed companies in the first day of trading and the price 3 months after listing. The only two companies whose prices we can compare are Emaar and Red Sea.
Emaar declined from SR30.5 in the first day of trading to SR17 after 3 months, almost half the price. And Red Sea did even worse, from SR86 in the first day of trading to SR15.5 after 3 months.
This year, two companies listed in the stock market, Advanced Polypropylene Co. (APPC) and Al-Abdullatif, and both of them were listed at a premium, although, not as impressive as the listings in 2005. Their price appreciations in the first day of trading were 1.8 and 1.3 times respectively. Thus, the year 2007 maybe starting with some promise and stability in the IPO market.
This view is strengthened by the first new offering of the year, Al-Malaz Insurance, which was oversubscribed by 142 percent during the first 3 days of offering.
Riyad Bank hopes that the year 2007 will be a more promising and stable year for the Saudi stock market.
(Khan H. Zahid is chief economist and vice president at Riyad Bank. He is based in Riyadh.)