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30| pfi | Middle East Report 2009 Saudi IPOs


Saudi IPOs slowdown


A


t the start of the year, bankers were concerned that activity on Middle East- ern equity capital markets would not live up to the inflated expectations of 2008. With many leading institu- tions having recently expanded oper-


ations in the GCC in readiness for a boom, concerns mounted that newly expanded, Dubai-based ECM teams would stand idle.


Saudi Arabia, the region's largest and most mature econ-


omy, seemed to provide an answer. Its economy is more diversified than those of neighbouring Emirates and it boasts a cash-rich investor base. It also had a robust pipeline of privatisations that the government wanted to use as a means to redistribute wealth to ordinary Saud- is. Potential issuers were also plentiful among non-state firms in a range of sectors such as oil, property and infrastructure. But after a promising start to the year with an early, high-profile IPO, the deal flow dried up. Mobile tele- coms firm Etihad Atheeb launched its sale of 30% of the company, raising SR300m (US$80m) in January with the offer 3.5 times covered. The CEO of Saudi Hollandi Cap- ital, joint leads on the deal with NCB Capital, declared the transaction's success as indicative of the resilience of the Saudi economy. This view was shared well beyond the Kingdom's borders and banks with international ECM franchises started to engage in a scramble for market share in Saudi Arabia.


The best established of the foreign banks in Saudi Arabia is arguably HSBC, though US rivals such as JP Mor- gan and Morgan Stanley have made considerable head- way in carving out their own niches. The country presents some unique challenges, however, including severe restrictions on foreign ownership of assets (which lim- its ECM deals to the domestic market) and a high level of competition.


At the start of 2009 expecta- tions were high that Saudi Arabia would sustain the momen- tum of last year in terms of new equity issuance from the Gulf region. By Chris Vellacott.


This in turn puts pressure on fees and international institutions seeking to establish a presence in the King- dom often balk at the knock-down rates accepted by their local rivals. What compensates in the eyes of bankers, however, is the sheer volume of equity issuance. In 2008, the country saw half as many listings as in the previous year, but double the volume thanks to a run of big ticket issues. Among the highest profile deals last year were a SR2bn (US$534m) rights issue in November from telecoms company Mobily, which was 230% covered. This followed on from Mobily's SR5.5bn (US$1.5bn) sec- ondary offer in March.


Other deals included the SR6.59bn (US$1.76bn) IPO by industrial group Mohammad Al-Mojil and the SR4.6bn offer by petrochemicals group PetroRabigh, both led by HSBC. Mining company Ma'aden carried out a SR9.2bn (US$2.47bn) privatisation IPO in July that was twice cov- ered and the government exercised a clawback option reducing the institutional tranche to 15% from 37% fol- lowing strong retail demand.


The market is now conspicuously quieter and many bankers do not expect to see activity resume until well into next year. The need to raise capital in sectors such as oil and real estate, which would struggle with investor demand in the current economic climate, is now wide- ly expected to be met through private placements. But the IPO market is not entirely lifeless. Last month saw the completion of offers from four local insurance firms, which some analysts hope will lift sentiment in the broader market. Individually, the IPOs were minuscule but the impact


may add up to more than the sum of their parts, especially considering that the offers were many times covered. Al Rajhi Company for Cooperative Insurance was nearly 900% subscribed on its SR60m (US$16m) offer while AXA Cooperative Insurance saw 670% coverage on its SR80m sale. Al Rajhi Company for Cooperative Insurance


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