Stocking up: A slew of new listings bodes well for the exchange

Throughout 2012 activity in Saudi Arabia’s initial public offering (IPO) market picked up considerably compared to the previous year. By the end of December, the Saudi Stock Exchange (Tadawul) had seen seven new listings worth a total of SR5.33bn ($1.42bn), up from five listings worth a total of SR1.73bn ($461.22m) in 2011. The uptick in new listings is widely considered to be indicative of a reversal in wider market sentiment, which reflects the Kingdom’s rapidly strengthening economic position since mid-2011.

Indeed, high oil prices and GDP growth rates in late 2011 and 2012 are expected to contribute to increased activity in the Tadawul for the foreseeable future. Demand for new equity listings is high — all seven of the offerings made in 2012 were oversubscribed by at least two times. As a result of impressive performance throughout the year, 2012 was the biggest year for IPOs on the Saudi stock exchange since 2008.

Turnaround

Regional IPO activity dropped off considerably in the wake of the 2008-09 financial downturn, as companies worked to shore up their accounts and investor appetites slowed. While Saudi Arabia was relatively well insulated against the crisis, many local firms put off plans for future development in order to take stock of existing revenue streams and fortify themselves against future shocks. In 2009 the Tadawul hosted 11 IPOs worth a total of SR3.88bn ($1.03bn), down substantially from 13 new listings worth a total of SR36.39bn ($9.70bn) in 2008 and 26 new listings worth some SR18.04bn ($4.81bn) in 2007. In 2010 just nine new companies went public on the exchange, for a total value of SR3.83bn ($1.02bn).

As the market bottomed out in early March 2011, the Kingdom’s broader economy began to pick up again and in the latter half of 2011 the Tadawul followed suit. Indeed, four of the five IPOs put forward in 2011 were offered in the second half of the year, and three of these were in the fourth quarter, including the second-largest IPO for the year, Hail Cement Company (HCC). All three fourth-quarter offers received significant investor attention, with Extra being more than 200% oversubscribed, HCC being more than 130% oversubscribed and Saudi Enaya being 238% oversubscribed.

Strong Six Months

In the first half of 2012 four companies entered the market, buoyed by rising oil prices, economic growth and the stock exchange’s strong performance in late 2011. In mid-January the SR234m ($62.38m) IPO of 15% of packaging manufacturer Takween Advanced Industries was oversubscribed by 571%, according to official data from the Tadawul. Two months later, in mid-March, local insurance company Alinma Tokio Marine’s IPO of 30% of the company was more than 16 times oversubscribed, raising around SR60m ($16m). In April a SR850m ($226.61m) offering by Najran Cement — one of the Kingdom’s largest cement companies — was 306% oversubscribed.

New Major Listings

In May 2012 the Al Tayyar Travel Group listed 30% of its capital on the Tadawul in an offering that brought in SR1.37bn ($365.24m), and was oversubscribed by more than six times. The IPO was the largest listing on the Tadawul since 2010. Al Tayyar is one of the largest travel companies in the Middle East, with major operations in Saudi, Arabia Egypt and Malaysia, among other key destinations. The firm had initially received approval from the Capital Markets Authority to list in 2010, but delayed the process due to lacklustre market conditions at the time.

In June 2012, an IPO of 30% of Saudi Airlines Catering, the catering arm of the Kingdom’s flag carrier, was 221% oversubscribed, raising SR1.33bn ($354.58m) in financing. The listing, which was the second largest on the Tadawul in 2012, allowed investors to gain exposure to the national airline, which is otherwise entirely government owned. Finally, in early September 2012 a SR946m ($252.20m) IPO of 50% of City Cement was nearly three times oversubscribed.

As of late 2012, the Kingdom’s IPO market was forecast to cool slightly in 2013, due primarily to an expected decline in oil production. Despite this prediction, IPO activity is further expected to pick up again in 2014.