JEDDAH, 24 December 2005 — Stock speculators in Saudi Arabia have been prospecting for a different type of deal lately: Cash-strapped families willing to use their family name to help them make money, Al-Madinah daily reported.
Unlike other stock markets, the Saudi system ensures that everyone that wants to buy a stock at the offered price can do so regardless of the demand.
It works like this: When a Saudi company floats stocks, regulators can limit the number of stocks an individual Saudi can buy in order to guarantee that every interested buyer gets a piece of the pie. The more Saudis are interested in buying a particular stock, the fewer stocks each Saudi can buy. The limit for each buyer is determined by how many family members are listed on the buyer’s family card. (Only Saudis can invest in the Kingdom’s Tadawul stock market.)
This system has led some stock buyers to engage in the legally ambiguous process of urging poor families to buy stock using their family cards. The stock buyers front the families with cash and then collect the dividends minus a pre-negotiated commission.
According to the Al-Madinah report, this scheme was occurring outside stock-purchasing centers throughout the Kingdom during a recent IPO offer by Yanbu National Petrochemicals Company (Yansab).
Stockbroker Naif Al-Tuwargi told the newspaper that he was offering a 50 percent commission to families willing to use his money to buy stocks during the Yansab flotation, where crowds of prospective Saudi flocked to banks trying to get in on the action. Police had to be called in to control flows at some banks, according to press reports.
Another investor, Muhammad Al-Jaberi, said that speculators search for Saudis with the largest families in order to get more bang for their buck. “When I bought Albilad Bank stocks, I paid a Saudi SR6,000 for a family card with six members. It was a good deal for him,” he said.
The stock market craze has hit the Kingdom with the liberalization of economy. The economic boom spurred by rocketing oil prices has given many Saudis extra cash to invest. If you add to that the Kingdom’s effort to encourage investors to keep their money in the country, then the result is a perfect storm for widespread stock speculation.
Human resource officials at government departments have noticed a large number of employees who took time off or were absent the whole day when Yansab went public. According to statistics cited by Al-Madinah, absenteeism among public workers rose to 13 percent during Yansab’s underwriting, a rate considerably higher than normal.
Arab News reported on Dec. 17 that teachers, too, have caught the bug of stock speculation and have even left classrooms unattended in order to run out and make investments before the banks close. (Banks in Saudi Arabia close at noon and reopen at 4:30.)
It was perhaps accidental that the Yansab flotation coincided with social security disbursements. Still, Al-Madinah reported that elderly account holders were seen in lines at banks to participate in the stock frenzy.
Reports of stocks jumping from SR50 to over SR900 in a single day are making Saudis wary of the family-card scheme. Realizing that they can make more money by coming up with the investment cash on their own, it is becoming difficult for stock speculators to find Saudis willing to rent their family cards. “It is tough these days to buy family cards from people,” said Al-Jaberi.
