02 June 2006
Recent GCC stock market reversals have prompted calls from investors across the region for government intervention, and from financial analysts for governments to adopt a laissez-faire approach. The correction has also given rise to a debate about the wisdom of staging new initial public offerings (IPOs): on the one hand, a broader range of stocks would benefit the markets; on the other, removing liquidity from bourses in the bearish climate threatens to accelerate the share price decline. Reflecting the potential political dimension to the slump, these issues are being tackled at the highest level in Saudi Arabia, where the market has fallen by some 35 per cent since the start of the year.

The pipeline of IPOs in the kingdom is long and constantly expanding. Next to hit the market is set to be Emaar The Economic City, the project company for the planned King Abdullah Economic City at Rabigh. The offering has Capital Market Authority (CMA) approval and had been slated for launch in late May or early June.

However, it is understood that the question of timing has been elevated beyond the level of the CMA. 'The Council of Ministers [cabinet] is wondering if this is the right time for new IPOs, particularly since this would be the largest ever in the kingdom,' says a Riyadh-based analyst. 'The worry is that people will start pulling their money out of the secondary market. And if the TASI [Tadawul All-Share Index] were to fall into the 7,000-8,000 points range, that's the time you have to start bailing out the banks. But what the market really needs is quality offerings in addition to the delisting of some traded firms.'

In addition to the Emaar IPO, the key share sales being awaited by investors are from Saudi Arabian Mining Company (Maaden) and Kingdom Holding Company, both due by the end of the year. Seven-eight IPOs have the CMA's blessing and are awaiting only approval on timing.

The TASI breached another psychological barrier on 22 May, when it dropped below 10,000 points. New CMA chairman Abdulrahman al-Tuwaijri reacted by announcing a series of market-strengthening measures the formation of a capital market company, the creation of investment funds independent from banks and the establishment of a new stock exchange system.

The TASI subsequently staged a tentative rally, and stood at 11,201 points on 31 May, a 3.4 per cent weekly rise. Blue-chips in particular recovered, as valuations became attractive. The trailing price/earnings (PE) ratio of Saudi Basic Industries Corporation (Sabic) stood at about 18 in late May, and Saudi Telecom's at about 16.

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