JEDDAH, 22 October 2004 — Demand for shares in Saudi Arabia’s new mobile phone company is so huge that scuffles are breaking out at banks, and stock subscription forms are being sold on the black market, traders say.
The initial public offering (IPO) in Ettihad Etisalat, a consortium led by the UAE’s telecom monopoly, began Saturday and ends Oct. 25. Traders said the issue was already several times oversubscribed, describing massive demand for the 20 million shares offered at SR50 each. There will be a limit of 10,000 shares per person, in order to allow room for small investors.
“There’s a big appetite for shares here at the moment, particularly issues sold at low premiums,” said Alhassan Goussous, head of investment services at Saudi British Bank, adding the IPO would probably be at least 20 times oversubscribed.
One local press report described how a branch manager of a leading bank was assaulted in an argument over the highly sought-after stock purchasing forms.
“Some banks ran out of forms, so people started to think the staff were holding them back for their favorite customers,” Goussous said. “Some people are going into bank branches, collecting forms and then selling them for around SR50.” Saudi banks insisted that subscribers to Etisalat shares should have accounts in their branches. They provided share subscription forms only to those holding accounts in their branches.
Samba Financial Group is the share flotation manager. Many women and small investors competed with men in buying the shares. One problem facing women is that they cannot subscribe in the names of their children while husbands can do so. This is a system adopted by Saudi companies in discriminating between men and women when it comes to buying of shares.
One woman who gave her name as Khadija told Al-Watan newspaper that she felt she was done a great injustice by the company denying her the chance to buy shares in the names of her children. She boycotted the operation for several days but changed her mind later, saying she realized she would be the loser if she stayed away.
Abeer Al-Omar, a teacher, said she had no idea on how share trading was conducted but was convinced by her brothers that the shares she bought could sell for SR700 each.
Some women went to the banks to buy shares without the knowledge of their husbands. Others came with powers of attorney in their hands with their husbands authorizing them to buy shares in their names and the names of their children. One of these women said she would not allow her husband to share in the profits.
Said Al-Shaikh, chief economist of the National Commercial Bank told Arab News that there is ample liquidity available in the market due to rising oil prices.
“As the Saudi stock market is booming, new investors are entering the stock market through IPOs. Investors’ appetite is huge and as only a small number of shares are available there is great rush to grab the opportunity,” he said.
“Most of the companies have announced their third quarter results and it looks the profitability of Saudi listed companies is likely to reach SR40 billion this year. This is one of the reasons that investors are attracted to the stock market,” he added.
Due to the success of the recent IPO of Sahara Petrochemical Co., which was oversubscribed 137 times, Al-Shaikh said the IPO of Etisalat will be oversubscribed by at least 30 to 40 times and the price may jump to SR250 immediately after the share starts trading on the stock market.
Al-Shaikh said less amount of money is leaving the local economy because there is less interest in international stocks as they are not doing well. “The Saudi Stock market on the contrary is booming this year,” he said.
Saudi stocks rose 4.3 percent in the week to Thursday, setting a new record high late in the week driven by strong results from the Kingdom’s top firms, traders said.
The market settled at a new high of 6,969.85 points on Wednesday. Yesterday the all-share index of the largest Arab bourse closed at 6,949.86 points, up from 6,666.15 a week ago.
Bakheet Financial Advisors said earnings for the first nine month of 2004 for the top 20 high-cap companies were almost double what they were over the same period last year.
Turnover fell to SR31.27 billion ($8.35 billion) from SR35.6 billion a week earlier.
Abdulwahab S. Abu-Dahesh, senior economist and head of investment research of Riyad Bank, said that the telecom sector was very attractive in the Kingdom.
“Investors are looking for short-term profits and this is the reason that men and women are rushing to buy Etisalat shares to make quick profits on expectation that the shares will jump once they start trading. After the huge success of Saudi Telecom Company, investors are optimistic of making quick profits,” he said.
Some traders attributed the buying frenzy to the strong performance of the Saudi bourse over several months, fueled by record oil prices and healthy corporate results. Investors have also been encouraged by recent government steps to implement investment reforms, such as establishing a board for the capital market authority to enact a long-awaited capital market law. Other traders said jobless Saudis were swelling demand.
“There is a lot of unemployment in Saudi Arabia at the moment, so many people are naturally looking for other sources of income in the capital market,” said Oubada Duwaji, senior portfolio adviser with Dubai-based Shuaa Capital.
The Saudi government awarded the consortium, which is part owned by Etisalat, a permit in August to set up and operate a mobile phone network worth SR12.2 billion. The contracts end the monopoly of majority state-owned STC, the Kingdom’s largest listed firm and one of the most heavily traded on the bourse.
Saudi Arabia, the world’s biggest oil exporter, has a rapidly growing telecoms sector. It also has the region’s largest bourse, but only Saudis are allowed to buy shares. Foreigners can only invest through mutual funds.
Etisalat has announced that it expects to get up to seven million subscribers in the first five years of its operations in the Kingdom.
The vice president of Etisalat and executive manager for marketing, Mohammed Al-Fahiem, has said the company expects to start its services in the Kingdom from the beginning of next year. The company would provide the most advanced services to its subscribers, which would include third generation mobile phone technologies enabling the subscriber to receive TV telecasts, in addition to transmission of pictures and other proactive services.
— Additional input from agencies
