RIYADH, 14 November 2007 — Saudi private sector represents one of the most vibrant areas of business development in the entire Arab and wider Muslim worlds, observed John Sandwick, chairman of the Second Saudi IPO Summit which was inaugurated here in the capital on Sunday. Dr. Nasser Al-Dawood, undersecretary in the Riyadh Governorate opened the summit on behalf of summit patron Prince Salman, governor of Riyadh.
“Family companies doing hundreds of millions of dollars in business today will be doing billions of dollars in the near future. It’s not only a story about unchaining private-sector growth, it’s also the government’s parallel deregulation and re-regulation of capital, not to mention the estimated $38 trillion in oil revenues entering the region over the coming generation, Sandwick, who is also the managing director of Encore Management SA, Switzerland, said.
“IPOs are the key ingredient to unlocking enormous energy and talents that this magic combination creates. No regional or international investor can ignore these dynamics and the abundant opportunities they represent.”
“The most active initial public offering (IPO) market and largest stock market by capitalization in the Middle East is set to double over the next two years,” Brad Bourland, chief economist at Jadwa Investment, noted. “Currently, there are 100 companies listed on the TASI and I would expect that number to double within the coming two years. Being held in Saudi Arabia, this IPO Summit is creating a healthy environment for IPO partners and bankers to do business together for the benefit of the stock market and the wider Saudi economy.”
“Increasingly Saudi Arabian companies are using IPOs as a vehicle for raising capital. This is now attracting not only local but international investors, with overseas capital being drawn into the local market supplementing the existing high levels of liquidity,” Al-Dawood said. “With oil now touching $96 per barrel, investors still have a healthy appetite for IPOs. Strong GDP growth will drive the market and provide the stamina for numerous public offerings in the months ahead,” Deep Marwaha, senior conference manager, said.
“Many industry experts believe mining will be the next investment boom in the Gulf region, after local stocks, oil and real estate,” said Abdullah Al-Fallaj, vice president - Finance at Ma’aden (Saudi Arabian Mining Company). He added that the publicly-owned Ma’aden is planning to raise up to $2.5 billion in an initial public offering.
Some 40 firms will sell shares to the public in Saudi Arabia in 2008, in offerings worth up to $8 billion, or twice this year’s total, the investment banking arm of state-owned National Commercial Bank (NCB) said on Sunday. “We may see 30 to 40 companies,” Hasan Al-Jabri, head of investment at NCB Capital, told a conference in Riyadh. “I think liquidity in the market is quite strong ... the 40 companies who have announced that they would like to go for an IPO next year are talking about less than $8 billion.”
Jabri said there had been about 25 initial public offerings in Saudi Arabia in 2007, which raised a total of around $4 billion. NCB Capital was mandated lead manager and underwriter for seven IPOs in 2007.
Jabri said he was including in next year’s IPOs the $10-billion PetroRabigh refinery venture between Saudi Aramco and Japan’s Sumitomo Chemicals and the start-up Inmaa Bank.
The Saudi stock market authority said this month PetroRabigh’s IPO would run from Jan. 5 to Jan. 12 and would involve the sale of a 25 percent stake in the company. No announcement has been made regarding Inmaa Bank, although the government had said it could hold its IPO for 70 percent of its capital this year.
“Our expectation is that it will be a par issue (SR10 per share),” Jabri said of Inmaa Bank.
The largest Middle East IPO to date was the 2003 sale of $2.72 billion of stock by Saudi Telecom Co. but IPOs that once caused scuffles among potential retail investors have become less appealing since Gulf stock markets crashed in 2006. Regulators, especially in Saudi Arabia and the United Arab Emirates, are now working on reforms to draw institutional investors and make share sales more attractive for companies.
Asked about concern for demand, Jabri said: “These firms are fantastic. With such quality firms you will see a lot of appetite from the market ... forty seems a challenging number, but it’s achievable.”
According to Ernst & Young, 20 Middle Eastern companies raised a total of $3.9 billion in IPOs in the second quarter of 2007, of which Saudi featured two of the three largest offerings in the region worth a combined total of $2.34 billion. Currently earning a fivefold return, the Saudi IPO market is expected to continue to grow as the kingdom’s financial sector makes progress in liberalization, regulations and standards.
Mutlaq Hamad Al-Morished, chairman of Saudi Kayan Petrochemical Company, delivered a case study of Kayan’s successful $1.8 billion IPO.
The summit also addressed issues affecting IPOs, such as reasons for launching essential management restructuring, conversion of family businesses and exit strategies.
It received industry support with Samba as headline sponsor. Principal sponsor is NCB Capital, primary sponsor is Al-Bilad Bank, lead sponsor is Calyon. Supporting partner is Jadwa Investment. Gold sponsor is NAEEM Investment Company, silver sponsors are the Saudi Investment Bank, Swicorp, Oracle, TNI and TradeNet.
