Saudi bourse restructures itself with eye on IPO in second half

Saudi Arabia’s stock exchange, the largest in the Middle East, is changing its corporate structure as it prepares for a highly anticipated initial public offering this year.

The newly created Saudi Tadawul Group will have four subsidiaries, comprising the exchange, a clearing center, a depository company and a technology-services business. Exchange officials said the changes create the platform to strengthen the underlying infrastructure for the growth of the nation’s $2.5 trillion stock market, the world’s 10th biggest.

“We are the largest exchange in the region by far and one of the top 10 in the world by market capitalisation, and we are very liquid,” Sarah Al-Suhaimi, who will chair the new group, said in an interview. “we are also very profitable.”

Riyadh has been the hottest market for IPOs in the Middle East over the past two years, with new offerings oversubscribed, mostly by local retail and institutional investors. In 2019, the bourse hosted the $29bn offering of the world’s biggest oil producer, Saudi Aramco, with shares being sold mostly to Saudi investors seeking guaranteed dividends.

Al-Suhaimi said the exchange plans to list its shares in the second half of 2021 and may choose financial advisers as soon as this month.

Once completed, the reorganisation would make it the third publicly listed stock exchange in the Gulf after the Dubai Financial Market and Boursa Kuwait. The exchange hired HSBC Holdings in 2016 to manage its flotation.

Khalid Abdullah Al-Hussan will be the group’s chief executive officer. Mohammed Al-Rumaih, who has been serving as the chief of markets at the bourse, was elected as the CEO for the Saudi Exchange, previously known as Saudi Stock Exchange Company Tadawul.

The Saudi exchange has been working to become a diversified financial-markets player, Al-Hussan said.

“We are deviating also from the dependency of trading activity,” he said. “More than 30 per cent of our revenue today comes from non-trading and that keeps growing year over year and will continue growing that for our investors.”

After the listing, the exchange will continue to look for expansion opportunities, not necessarily within Saudi Arabia, Al-Suhaimi said.

“Anything that will complement the exchange will do, whether domestically or internationally,” she said when asked about whether the stock exchange might expand into other countries. “We are still only functioning in Saudi Arabia, but the future has many possibilities for us. Sky is the limit.”

The Tadawul All Share Index, composed by 198 members, is up 15 per cent this year, versus a 3.8 per cent increase for the MSCI Emerging Markets Index.

• The Tadawul is owned by Saudi Arabia’s Public Investment Fund, the sovereign wealth fund. It has a capital of SAR1.2bn ($320m), divided into 120 million shares, according to its website.
• The Saudi exchange posted a net income of SAR153m in 2019, when earnings before interest, taxes, depreciation and amortisation reached SAR205m.
• The total value of shares traded in Riyadh last year reached $557bn, a jump of 137 per cent versus the previous year, according to the exchange’s annual report. That compares with about $18bn in the Dubai Financial Market, which posted a 24 per cent increase in total traded value last year.
• Compared with Saudi Arabia’s $2.5 trillion size, the United Arab Emirates exchanges have a combined market capitalisation of $329bn and Kuwait has $103bn.