JEDDAH, 28 January 2008 — Shares of Rabigh Refining and Petrochemical Co. (Petro Rabigh) began trading yesterday after a disastrous week for Gulf Arab petrochemical stocks, surging almost 150 percent above their initial public offering price on their first day of trading.
Petro Rabigh priced its IPO at SR21 per share. The stock opened at SR43 and close at SR52. More than 228 million shares have changed hands, about half the day’s volume on the Saudi bourse.
“There were institutions getting into the stock on the first day,” said Youssef Kasantini, chief executive of Bourse Experts, a Riyadh-based consultancy, which expects the stock to rally to as much as SR57.
Saudi Aramco and Japan’s Sumitomo Chemicals own 37.5 percent each of Petro Rabigh. They sold the remaining 25 percent this month to Saudi investors in a SR4.6 billion ($1.2 billion) initial public offering that was almost four times oversubscribed.
Shares of Saudi companies usually surge on the first day of trading after an IPO, but investors were paring expectations after the events of the last week, said Turki Fadak, member of the Saudi Economic Association.
“Instead of hoping for SR55 on the first day, they will be hoping for SR40 or SR45,” he said.
The Saudi market steadied on Saturday after losing 20 percent in the previous five trading days, including a record slide of almost 10 percent on Jan. 22.
Saudi Basic Industries Corp, the world’s largest chemical-maker by market value, triggered the sell-off by missing fourth quarter earnings forecasts and blaming it on slowing demand for petrochemicals in the United States.
SABIC’s stock lost a quarter of its value in five trading days, dragging other petrochemical shares lower. The tumble turned into a rout by midweek when declines in global stock market spread panic among regional investors.
However, yesterday SABIC) jumped 3.53 percent, its biggest one-day gain in three weeks.
Investors, who dumped stock as they scaled back expectations of earnings growth, judge it has fallen too far.
SABIC tumbled 25 percent last week after missing fourth-quarter earnings forecast because of slowing chemical demand in the United States.
“The market has overcorrected,” Kasantini said.
“SABIC won’t recover to the levels we saw last but people are realizing that the company has a lot of new projects coming on stream and exports to Asia to sustain growth,” he said.
SABIC almost doubled in value last year as it reported five straight quarters of record profit.
It is now trading at 14 times earnings, closer to valuations of peers Dow Chemical Co and Germany’s BASF, both at around 10 times earnings.
The index climbed 3.78 percent to 9,789.07 points. As with SABIC, it is the biggest gain since Jan. 5.
The concerns over SABIC would not hit PetroRabigh’s stock, said Timothy Gray, head of HSBC Saudi Arabia, which managed the IPO.
“SABIC is a much more complex company with many different factors which influence its earnings,” Gray said. “One would be overstating the market’s concerns over this.”
Gray said he could not provide an earnings forecast for Petro Rabigh, which will start commercial operations in the fourth quarter.
It was the first time Aramco has offered shares in one of its affiliates to the public.
“With oil prices expected to remain in $70-$90 per barrel range in the coming years, this translates into very attractive margin for a company that has access to feedstock,” Gray said.
Aramco will supply Petro Rabigh with feedstock to operate the plant on a long-term, fixed-price basis and will market Petro Rabigh’s refined products.
Petro Rabigh will export most of its petrochemical products to Asia while refined products will essentially be sold in the Middle East, Gray said.