The Middle East’s best-performing listing of the year comes from its worst-performing major bourse.
Investors have piled into Saudi developer Umm Al Qura for Development & Construction Co., encouraged by the kingdom’s moves to liberalize property rules and a push to prop up religious tourism under its economic transformation plan.
The Mecca-based developer has jumped nearly 60% since its March listing, giving it a market value of $9.2 billion, in stark contrast with the average 1.7% increase in Saudi listings this year. The firm has also outperformed the kingdom’s benchmark and real estate indexes, which are both down for the year.
Saudi Arabia’s General Organization for Social Insurance and the Public Investment Fund are Umm Al Qura’s top shareholders, with a combined 44% stake. The IPO has also bolstered the fortunes of Chairman Abdullah Saleh Kamel and his Jeddah-based conglomerate, Dallah Albaraka Holding Co., which together hold an 11.1% stake — now worth more than $1 billion.
“The business model is easy to grasp — a diversified real estate developer with prime assets right next to the Holy Kaaba,” said Mohamad Haidar, head of Middle East and North Africa real estate at Arqaam Capital. The firm owns land, self-develops, sells plots and builds for lease, which Haidar said reduced risk.
The IPO tapped into the rapid expansion of religious tourism, which analysts say is less sensitive to economic downturns. Recent changes that will for the first time allow Muslim foreigners to buy property in the holy cities of Mecca and Medina, are also part of the draw for investors.
Umm Al Qura’s name translates into mother of all villages, a term used as a title for Mecca. The firm is developing one of the largest projects in the city that’s set to include 50,000 hospitality and residential units, and will cost about $27 billion.
Holy cities in Saudi Arabia have limited land supply and will likely draw high demand from overseas, Arqaam’s Haidar said, calling it a “huge catalyst” for the region. That, in turn, would shield Umm Al Qura from fluctuations in the oil prices or broader macroeconomic headwinds, he added.
While Saudi Arabia has been the busiest venue for listings in the Middle East, those headwinds have hurt recent debuts. Concerns over lower oil prices and the potential impact on government spending have meant that only three of the kingdom’s 10 largest listings of the year trade above their offer price. That’s despite a recent boost in Saudi equities on plans to ease foreign ownership rules.
Against that backdrop, Umm Al Qura’s continued out-performance could act as a catalyst for other peers looking to list, according to Swapnil Pillai, director of real estate research at Emirates NBD.
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