JEDDAH, 30 April 2007 — The Saudi stock market dropped yesterday after chalking up gains for the last three trading days.
According to BMG Financial Advisors, a leading provider of financial services in the Kingdom, the initial public offering (IPO) of Saudi Kayan Petrochemical Co., which opened for subscription on Saturday, has had an inadvertently detrimental impact on the Saudi stock market.
The Saudi Kayan IPO with a total SR6.7 billion ($1.8 billion) to be raised is expected to draw a fair amount of market liquidity over the 10-day subscription period. Many market participants, mainly the retail investors, have decided to liquidate their portfolios in order to participate in the IPO. This will have a negative impact, therefore, on share prices, which in turn, induces other retail investors to sell down positions. Accordingly, with both market liquidity and stock prices declining, it is unlikely that the market will be able to make a breakout from its poor performance, to start recovering.
The Tadawul All-Share Index (TASI) fell 88.61 points or 1.19 percent to 7,372.84 yesterday.
The BMG Saudi Index also declined in yesterday’s trading session by 0.81 percent, losing 3.2 points. Despite the decline recorded by the index, two positive factors might change the stock market outlook in the short term. The first factor is the timing of the IPO. The history of IPOs in the Saudi stock market shows that the majority of IPOs were successful enough to provide investors with profits after listing. Hence, it is possible that the retail market’s confidence will improve again, once the IPO has occurred.
The second factor that suggests an optimistic trend in the market over the short term is the security situation in the country.
The announcement of the Ministry of Interior in thwarting the largest possible terrorist attack a few days ago may have a positive effect in the minds of investors since it underpins the ability of the government to preserve a safe investment environment.
In addition to these factors, recent studies released by the government indicate a continuing growth in the non-oil private sector with rates higher than the rates in the oil sector, providing greater diversification in the macroeconomic status, which should bolster the general investment climate in the Kingdom.
Out of 86 stocks traded yesterday, 70 were in negative territory while shares of 13 companies increased. Over SR14 billion worth of shares changed hands.
In the banking sector, shares of Samba Financial Group, SABB, Bank Albilad and Bank Aljazira declined.
In the industrial sector, only three companies — Filling & Packing Materials Manufacturing Co., National Metal Manufacturing and Casting Co. and Saudi Industrial Investment Group — edged higher, while shares of all other companies were in the red.
Shares of Saudi Basic Industries Corp. also fell to SR120.25.
Saudi Telecom Co. (STC) and Etihad Etisalat’s shares declined 1.67 percent to SR59 and 1.89 percent to SR52 respectively.
Shares of Saudi Electricity Co. (SEC) fell 2.04 percent to SR12 despite announcement yesterday from Ali Al-Barak, executive director of SEC, that the company made the necessary arrangements for the implementation of a number of programs pertaining to loading, reserve generation and periodical maintenance. These arrangements will enable the company to take about 800 megawatts of loads to outside zones during the peak hours.
Al-Barak told SPA that the programs pertaining to taking loads during the summer season of 2007 will make it possible to supply 600 megawatts in the Eastern region, and 200 megawatts in the Central region.
Meanwhile, Prince Mishaal ibn Abdullah ibn Turki, chairman of Anaam Holding Company, said his company had presented a rescue plan to the Capital Market Authority (CMA). “The plan contains two important phases to save the company from bankruptcy,” he said, adding that in the first phase SR240 million would be pumped into the firm by an investor within a month after its return to Tadawul. Under the second phase, the company’s capital would be increased from SR350 million to more than SR1 billion.
