MARKET IN FOCUS: SAUDI ARABIA: Emaar listing disappoints
Small investors have become wary of the secondary market since the first-quarter crash but their expectations of initial public offering (IPO) windfalls remain as exaggerated as ever. Shares in Emaar The Economic City (EEC), offered in the primary market in the summer, were listed on 7 October and tripled in value on the first day of trading. However, many prospective sellers were disappointed, having hoped for an appreciation nearer ten-fold.
EEC shares were sold at SR 10 ($2.67) during the IPO and ended the first day of trade on the Tadawul at SR 30.50 ($8.13). By the close on 10 October the price had risen to SR 40.25 ($10.73). 'People were expecting the stock to go up to SR 100-150 ($26.67-40),' says Khan Zahid, chief economist at Riyad Bank. 'But conditions are different from last year. Most small investors have been scared out of the secondary market since the crash. Instead they only play the market through IPOs and aim to exit during the first day. So there is potentially huge supply and not much demand.'
Mindful of the chaos catalysed by the listing of Yanbu National Petrochemical Company (YanSab) shares in February, the Capital Market Authority (CMA) set aside a special afternoon slot for EEC trading. The authority has also more broadly been tweaking trading hours to reduce market volatility. From late October, there will be only one daily trading session - from 11:30 to 3:30.
'The idea is to cool off speculative trading,' says Eric Louis, equities analyst at Banque Saudi Fransi. 'The afternoon sessions were very much dominated by small investors, civil servants finishing work in the early afternoon and going home to trade. Plus between the sessions there was huge chatroom activity. The change will dampen the rumour mill.'
Shares in leading retail franchisee Fawaz Abdulaziz Alhokair & Company hit the primary market on the same day as the EEC listing. The response was healthy but not overwhelming. Rather than being priced at par, the shares are being offered at SR 110 ($29.33) - to the chagrin of some retail investors. 'Because of the price, I would not expect massive oversubscription to this one,' says Zahid. 'Private companies can't afford to underprice IPOs in the manner of government-related offerings because they would be doing a disservice to shareholders.' Complaints were also voiced about a restructuring by Alhokair last year which hived off debt and poorly performing brands into a new company.
The Tadawul All-Share Index (TASI) has been moving sideways in the 11,000-12,000-point range in recent months, with some small stocks fluctuating widely but relatively scarce trading in the blue-chips and consequently little movement in the overall index. Attention is now turning to the release of third-quarter results, when portfolios are typically reordered.
Small investors have become wary of the secondary market since the first-quarter crash but their expectations of initial public offering (IPO) windfalls remain as exaggerated as ever. Shares in Emaar The Economic City (EEC), offered in the primary market in the summer, were listed on 7 October and tripled in value on the first day of trading. However, many prospective sellers were disappointed, having hoped for an appreciation nearer ten-fold.
EEC shares were sold at SR 10 ($2.67) during the IPO and ended the first day of trade on the Tadawul at SR 30.50 ($8.13). By the close on 10 October the price had risen to SR 40.25 ($10.73). 'People were expecting the stock to go up to SR 100-150 ($26.67-40),' says Khan Zahid, chief economist at Riyad Bank. 'But conditions are different from last year. Most small investors have been scared out of the secondary market since the crash. Instead they only play the market through IPOs and aim to exit during the first day. So there is potentially huge supply and not much demand.' Mindful of the chaos catalysed by the listing of Yanbu National Petrochemical Company (YanSab) shares in February, the Capital Market Authority (CMA) set aside a special afternoon slot for EEC trading. The authority has also more broadly been tweaking trading hours to reduce market volatility. From late October, there will be only one daily trading session - from 11:30 to 3:30. 'The idea is to cool off speculative trading,' says Eric Louis, equities analyst at Banque Saudi Fransi. 'The afternoon sessions were very much dominated by small investors, civil servants finishing work in the early afternoon and going home to trade. Plus between the sessions there was huge chatroom activity. The change will dampen the rumour mill.' Shares in leading retail franchisee Fawaz Abdulaziz Alhokair & Company hit the primary market on the same day as the EEC listing. The response was healthy but not overwhelming. Rather than being priced at par, the shares are being offered at SR 110 ($29.33) - to the chagrin of some retail investors. 'Because of the price, I would not expect massive oversubscription to this one,' says Zahid. 'Private companies can't afford to underprice IPOs in the manner of government-related offerings because they would be doing a disservice to shareholders.' Complaints were also voiced about a restructuring by Alhokair last year which hived off debt and poorly performing brands into a new company. The Tadawul All-Share Index (TASI) has been moving sideways in the 11,000-12,000-point range in recent months, with some small stocks fluctuating widely but relatively scarce trading in the blue-chips and consequently little movement in the overall index. Attention is now turning to the release of third-quarter results, when portfolios are typically reordered.This content is only available to full MEED package subscribers (MEED magazine and MEED.com).
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