A clutch of smaller companies is braving Saudi Arabia’s subdued equity market with share sales, but their success will hinge on pricing discipline as investors grow more selective.
Car-rental operator Cherry Trading Co. is set to raise 252 million riyals ($67 million) in its initial public offering, Almasar Alshamil Education Co. has drawn demand for all shares on offer for its $160 million listing, while refrigeration firm Consolidated Grünenfelder Saady Holding Co. is preparing to raise about $80 million. At least four others, including real-estate developer Al Ramz, have approval to list.
Valuation discipline will be crucial for ths fresh wave of deals, said Nishit Lakhotia, head of research at SICO Bank. “It is important for selling shareholders and lead managers to price the IPO at levels that leave some upside for investors,” he said.
The listings will come against a muted backdrop, with just two of the year’s 10 largest Saudi IPOs trading above their offer price. The benchmark index is down 7% and hopes for a rebound have faded after the regulator signaled delays to rules allowing majority foreign ownership. Even the wealth fund, typically a driving force on state-led deals, is looking to slow share sales, Bloomberg News has reported.
The caution is mirrored in the United Arab Emirates. State-backed contractor Alec Holdings PJSC is trading below its offer price after its October debut, and classifieds platform Dubizzle Ltd. has postponed its IPO — a rare setback for Dubai’s exchange.
Still, investors are less interested in first-day pops and more focused on fundamentals, according to Sanat Sachar, portfolio manager at Azimut Investments. That shift marks a healthier long-term trend and makes lofty pricing harder to achieve, he said.
In all, IPOs on main exchanges in the Middle East have raised more than $5.1 billion so far this year, building on momentum from recent years. Governments had pushed privatization plans to deepen markets and attract capital for economic diversification, and investors often saw strong post-listing gains.
That appeal has faded. Newly listed stocks across the Middle East and North Africa have declined this year, while other regions have posted solid returns, according to Lukas Muehlbauer of index provider IPOX Schuster LLC.
In this cautious market, global asset managers expect more disciplined pricing, Muehlbauer said.
The narrative is also diverging within the region, said Hasnain Malik, head of equity strategy research at Tellimer. “In Saudi, it’s whether the market’s under-performance versus peers now opens up an opportunity to revisit its transformation story, whereas in Dubai it is whether the market’s outperformance now reflects much of the upside of an economy with everything going for it.”
