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 percent 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 percent 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 percent 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.
Meanwhile the catering unit of Saudi Arabian Airlines is seeking to raise 1.3 billion riyals by floating 30 percent of its shares, becoming the first part of the state-owned Saudi flag carrier to be listed on the stock market. The IPO will close on June 24; a date for listing the shares has not yet been announced.
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.
But while Saudi economic growth may slow from last year's red-hot 6.8 percent, oil remains far above the price at which Riyadh can balance its state budget, which analysts estimate at around $76 per barrel. So the government is expected to be able to continue spending heavily to support growth, which some economists think may be in the 4 percent area this year - still a healthy level.
'Saudi Catering should be oversubscribed based on the current situation...but we don't know how much the market will deteriorate amid the global conditions,' said Tuffaha.
'The main impact is from oil prices but even if we see a bit more decline there, it's manageable because they skyrocketed since 2008.'
Late last month, Saudi Arabia's Al Tayyar Travel raised 1.37 billion riyals from an IPO of 30 percent of its shares, which priced at the top of their indicative range. The offer was 6.1 times oversubscribed.
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