RIYADH, 23 November 2002 — The government’s sale of shares in Saudi Telecom will be oversubscribed, according to leading Saudi businessmen and bankers. They also expect the share price to rise once shares start trading, even though the floatation price — set at SR170 a share — is agreed to reflect STC’s real value.
The government’s disposal of 90 million STC shares, a third of the total company stock, is the first of its massive privatization moves. The sale, announced on Nov. 11, starts on Dec. 17 and is expected to raise some SR15 billion for the Treasury. Public trading in STC shares will begin when the floatation ends on Jan. 6.
“People are keen to buy the shares”, says National Commercial Bank chief economist Said Al-Shaikh. “The demand will be massive.”
Other banks report the same. “From what we’re hearing from the market, the sale will be oversubscribed”, says Brad Bourland, chief economist at Saudi American Bank; “heavily” oversubscribed says Khan Zahid, chief economist at Riyadh Bank. “Everyone is interested”, says another Riyadh-based banker who is keeping a close eye on the STC sale.
Despite the fact that potential investors had hoped for a more generous price, they will nonetheless be applying for shares in unprecedented number, he says. “They expect STC to grow at double-digit figures.”
“People have seen the profits made in telecom sales in other countries,” says Abdulrahman Al-Jeraisy, chairman of the Council of Saudi Chambers of Commerce and Industry and also of the Riyadh Chamber of Commerce and Industry.
That is expected to lead to a scramble for STC shares, with prices rising beyond the SR170 mark once they are publicly traded.
Part of the reason for that is the government’s plan to sell two thirds of 90 million shares to individuals, not to companies; moreover, with every applicant promised a minimum of 10 shares, major players in the market will be unable to purchase large amounts during the floatation. But, according to one senior corporate finance adviser, investment funds will want to spread their portfolios; they will buy up shares on the open market when trading starts. “The price is expected to rise as a result.”
Individual investors are also expected to buy heavily into STC. According to Al-Jeraisy, so enthusiastic are local investors about the sale that many have already offloaded shares in other companies on the Saudi stock market so as to build up sufficient cash to buy STC shares when trading starts.
Even so, the RCCI chairman felt that prices fixed for future privatizations should be lower to lure investors. The view appears to be supported by some bankers who indicate that the SR170 share price for STC could have been more competitive.
The enthusiasm for the STC sale is nonetheless intense. “I’m going to buy as many shares as I can”, noted one princess. “The way people here have mobiles glued to their ears, I can’t fail to make money.”
