Saudi Arabia’s Tadawul planning for IPO in 2018

If Tadawul sells its shares in 2018, it would be the second stock exchange after the Dubai Financial Market to go public. Hasan Jamali / AP Photo

Saudi Arabia’s stock exchange, Tadawul, plans to sell a percentage of its shares in an initial public offering in 2018.

This move comes after the Arab world’s biggest equity market lost 17 per cent last year, its worst performance since 2008 and the region’s poorest-performing bourse in 2015. The stock exchange has a market cap of US$676 billion.

“Turning Tadawul into a public company is a very positive step for the Saudi market and it will have a lot of interest,” said Mohammed Ali Yasin, the managing director of NBAD Securities in Abu Dhabi. “It will be huge, but in order to succeed it will need a positive environment – that is, risk appetite from investors and high liquidity in the market.”

The IPO is expected to attract oversees interest after the exchange was opened in June to foreign investors, the last bourse in the Arab world to do so.

“I think they want to bring international investors into the market, and now in their new reality they have announced they will privatise other companies as well, so it fits into that picture,” said Muhammad Shabbir, the head of equity funds and portfolios at Rasmala Investment Bank in Dubai.

The new reality is a 2016 budget that includes lower spending and unprecedented cuts in water, electricity and gas subsidies, which are bound to affect economic growth already hurt by low oil prices. The budget, announced on Monday, also included plans to privatise some public institutions as a new revenue stream for the government.

Oil prices ended last year at less than $37 a barrel, a more than 65 per cent drop from 2014’s high of $114 a barrel, leaving the Saudi budget with lower revenue, a fiscal deficit and slower economic growth.

If Tadawul sells its shares in 2018, it would be the second stock exchange after the Dubai Financial Market to go public.

The DFM sold 20 per cent of its shares in 2007, valuing the exchange at Dh8bn. The DFM IPO was well-received by foreign investors.

“Foreign institutions would love to get their hands on the stock [Tadawul] because they would use it as hedge against investments in specific stocks also in that market,” Mr Yasin said.

The biggest IPO in the Arab world was Saudi Arabia’s National Commercial Bank’s $6bn debut in 2014. It was more than 23 times over subscribed.

Meanwhile, other regional markets ended 2015 in the red. Dubai fell 16.5 per cent, while Abu Dhabi declined 4.8 per cent. Kuwait dropped 14 per cent and Bahrain slipped 14.7 per cent. Qatar ended the year 15.1 per cent lower, while Oman shed 14.7 per cent.

Mr Yasin said 2016 was going to be more about a contracting economy rather than an expanding one, and that would be reflected on the stock markets. He said: “It will be a negative year for stock markets at least in the first half, and in terms of traded value will be a continuous drop.”

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