RIYADH, 8 October 2006 — Saudi Arabia’s biggest fashion retailer opened a $352 million initial public offering yesterday, with analysts expecting solid demand despite a stock market slump and questions over a balance sheet overhaul.
Fawaz Abdulaziz Alhokair & Co. operates 617 stores across the world’s top oil exporting country, and represents nearly 60 international brands, including Marks & Spencer, Zara and Massimo Dutti.
Established in 1990 the company held a 48.3 percent share of the $800 million per year Saudi retail fashion market by last year, the prospectus said. The IPO values the company at just under $1.2 billion.
Alhokair is offering Saudi investors 12 million shares, or 30 percent of its stock, at SR110 ($29.33) per share in the IPO which closes on Oct. 16.
That gives Alhokair a projected price to earnings ratio for the year to 31 March 2007 of 14.6 compared to the Saudi stock market’s average of 23, said Ioannis Karapatakis, a managing director at HSBC Saudi Arabia, the IPO’s lead manager.
As in much of the region, the price of shares sold in Saudi IPOs is not determined by a process of book-building. The offer is either made at nominal value of 10 riyals per share, or a premium set by company.
The SR100 premium to the share’s nominal value has triggered a public debate, as has happened with most IPOs since a crash halved the value of the largest Arab stock market between February and May, stinging large numbers of retail investors.
The debate shows just how deeply the crash scarred the Kingdom’s investors who snapped up every new offering during an equity boom in the past two years and paid astronomical prices for what eventually became worthless stock.
The new cynicism has so far done little to diminish investor appetite for IPOs. The offerings of prefabricated housing firm Red Sea Housing and Saudi International Petrochemical Company were both oversubscribed despite similar criticism.
“Strong demand for fresh paper allows financial advisers to stick any prices on new issues,” one analyst at a Riyadh-based bank told Reuters on condition of anonymity. He said he expected the IPO to benefit from yesterday’s debut of the shares of Emaar Economic City, which started trading at four times their IPO price. “This can boost subscription in Alhokair as some retail investors are expected to cash profits from Emaar and will pour some of the money elsewhere,” he said.
The IPO is also under fire over a financial restructuring in which Alhokair’s founders transferred the company’s debt and poorly performing brands to another company set up in May 2005.
