Friday 05 / July / 2024
Dubai: Saudi Arabia’s stock exchange, the Arab world’s largest, aims to sell shares in an initial public offering (IPO) in 2018.
The Saudi Stock Exchange-Tadawul seeks to offer shares after completing a "readiness exercise and obtaining the necessary approvals," according to a statement on its website on Thursday. One of the world’s biggest petrochemicals manufacturers, Saudi Basic Industries Corporation, trades on the Tadawul All Share Index. The gauge closed 0.1 per cent up on Thursday.
This year was the worst for Saudi stocks since 2008, even after the bourse allowed foreign investors to trade stocks directly for the first time in June. The kingdom’s finances have been under pressure after its main source of revenue, oil, sank to the lowest level in 11 years and as the nation leads an expensive war in Yemen. The government on Monday said it would cut spending and ease subsidies in 2016.
"They are trying to engage the private sector in the economic expansion, and they don’t want to rely on fiscal budget alone," said Mohammed Alsuwayed, the head of capital and money markets at Adeem Capital in Riyadh. "There’s going to be a restructuring of the market in Saudi Arabia, it’s not just the Tadawul IPO."
Under the leadership of King Salman, who ascended to the throne in January, the government announced plans to privatize “several sectors,” the Finance Ministry said in a statement this week.
The Tadawul All Share Index dropped 17 per cent this year. The exchange’s former chief executive officer Adel Al Ghamdi in May 2014 announced plans to hire banks for an IPO.
IPO-focused funds
For all the pain low oil prices are causing Saudi Arabia’s financial markets, at least one area is flourishing.
The number of active initial public offering-focused funds in the kingdom more than doubled in 2015, as investors respond to the nation’s efforts to develop its capital markets and boost participation from institutions. The funds managed more than 4.9 billion Saudi riyals ($1.3 billion) as of Wednesday, compared to almost 2 billion riyals at the end of 2014.
Investors are anticipating rule changes that would see Saudi Arabia allocate most of its often-lucrative IPOs to big money managers. The Capital Market Authority is trying to curb price swings of a stock exchange dominated by retail investors, as the country continues a bid to diversify the economy away from oil. The $420 billion bourse opened directly to foreign institutions in June and has since lured the likes of BlackRock and Ashmore Group.
Saudi Arabian IPOs offered a return twice as high as the global average for deals worth at least $100 million this year, according to data compiled by Bloomberg. The country’s one-month performance is second only to China, where regulators keep a tight control over IPO pricing.
