KSA IPOs Strong Despite Outlook

Although the stock market is down 14 per cent from this year’s high, investors are positive on earnings.

Saudi Arabia’s market for initial public offers of shares has been the strongest in the Gulf for the last two years, and with the fifth new listing of 2012 coming up next week, analysts expect a bullish reception despite weak global equity markets.

A surge by Saudi Arabia’s stock market early this year showed confidence in the local economy. The benchmark rallied 31 per cent between November and April while daily trading turnover soared, hitting levels not seen since 2007, as investors shifted money from other asset classes.

Although the stock market has now dropped 14 per cent from this year’s peak, tracking recent weakness in global equities and oil prices, investors are still positive about corporate earnings growth in coming months, and this should support appetite for new listings.

“As long as we have a positive outlook for corporate results, there will be over-subscription to IPOs,” said Hesham Tuffaha, head of asset management at Riyadh-based Bakheet Investment Group.

“We’ve seen 10 to 20 per cent growth (in corporate earnings) on average recently, and people are assuming that the growth will continue for the coming year.”

Tokio Marine Saudi Arabia, an affiliate of the Japanese insurance firm, will start trading on June 24 as Alinma Tokio Marine. The IPO was nearly 12 times oversubscribed during the six days of the offer, raising 690 million riyals ($184 million), lead underwriter Alinma Bank said in March.

A worsening global growth outlook, and its impact on oil prices, are the biggest potential threat to the appetite for IPOs. Brent crude oil is around $95 per barrel, near its lowest level since January 2011 and down from levels above $120 early this year.

Late last month, Saudi Arabia’s Al Tayyar Travel raised 1.37 billion riyals from an IPO of 30 per cent of its shares, which priced at the top of their indicative range. The offer was 6.1 times oversubscribed.

“Al Tayyar’s IPO did not do too badly and it came at a rough time,” said Tariq Alalaiwat, equity research analyst at Riyadh-based NCB Capital. “The coming IPOs will depend on pricing but the Saudi market still looks attractive. As long as they (new listings) focus on the domestic economy, they’ll do well.”

He added, “If a new petrochemical company goes public, people would be worried to buy into the exposure to global growth concerns. A local-driven company, despite what’s happening in China or Europe, stands a good chance.”