Kingdom to maintain lead in IPOs in 2009

Saudi Arabia will continue its leading position in initial public offerings in the Middle East region though the “market in 2009 will witness less activity in terms of IPOs as compared to 2008,” Dr. Mahdi Mattar, head of research and chief economist of SHUAA Capital, said in the company’s report on “Saudi Vision 2009” released last month.

He said “we do not expect to see any further offerings from the downstream oil industry for the time being, as the harsh drop suffered by oil and other commodity prices makes such ventures less attractive.”

However, some companies in sectors that are currently deemed less desirable such as real estate and the downstream oil industry, which might need to raise capital, would probably revert to private placements, he noted. “We anticipate a significant increase in number of such deals throughout the year,” he pointed out.

The report said the Kingdom’s current financial and economic challenges “are cyclical and not structural in nature,” forecasting a flat growth for the Kingdom in 2009, with real GDP growing at around 0.33 percent. “This number is heavily skewed by the drop in hydrocarbon real GDP due to the decrease in the production levels of the hydrocarbon sector. The non-hydrocarbon sector will grow in 2009 by 3.9 percent, slightly slower than the 4.4 percent growth in 2008,” the report said.

Real GDP growth in Saudi is estimated to slow down to around 0.33 percent in 2009, after recording a growth of 4.2 percent in 2008. Nominal GDP is forecasted to post a 24 percent year-on-year decline in 2009, mainly due to precipitous decline in oil prices, as well as oil production cuts.

“These trends support our assessment of slower growth and squeezed profitability for Saudi banks. Our expectations for deposits and loan growth for 2009 stand at a conservative 11.1 percent and 9.3 percent, respectively. We see strong upside potential should oil prices recover and the Saudi Arabian Monetary Agency (SAMA) further relaxes current regulations. Despite looking low in absolute terms, these numbers, relative to GCC peers, will likely be marginally stronger as we see Saudi Arabia providing the best investment climate in the region for the medium term,” Mattar said.

The report further forecast a “sharp… not gradual” recovery in the Saudi stock market, adding a 30 percent upside in the Tadawul All Share Index (TASI) benchmark in 2009. Recovery will take place to take place during the second half of the year and to be in the form of a rally after a period of range-bound volatile trading.

“Signs of global economic relief are likely to be the main driver for the Saudi market in 2009. Any indication of a possible recovery is expected to increase demand for oil and petrochemicals and put upward pressure on commodity prices. This will clearly have a positive effect on investor sentiment and should set the stage for a recovery,” he added. Mattar said the expected slowdown in lending activity “does not deter our belief that the banking sector will be able to endure this global downturn given the healthy supervisory framework and strong government support.”

He explained that the sector will log slower growth than in previous years due to higher funding costs and tighter margins, more pronounced risk aversion on the lending front, 3difficult recovery in brokerage revenues given a volatile market and rising competition from foreign investment banks, and higher provision charges.

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