Saudi Arabian contractor Al-Khodari failed to cover the retail tranche of its $163.2m initial public offering (IPO) due to continued negative sentiment in the Saudi Stock Exchange (Tadawul).

The company only managed to sell 5.3 million shares of the 6.38 million it hoped that retail investors would buy. Only 342,000 retail investors bought into the IPO.    

Al-Khodari is now awaiting approval from the stock market regulator to allow it to cover the retail tranche shortfall from institutional investors, who had already subscribed to 100 per cent of the shares offered through the flotation.

“The institutional tranche was for 100 per cent of the offering, with a claw back to 50 per cent of the offering to retail investors,” says a source close to the deal. “The fact that the retail tranche wasn’t fully covered highlights the lack of confidence in the market.”

Al-Khodari offered a 30 per cent stake, equivalent to 12.75 million shares at SR48 each ($12.80), which was at the bottom end of a SR48-51 offered range.   

Al-Khodari’s failure to raise its targeted funds highlights the reluctance among Saudi investors to invest in the equity markets. In February, Al-Tayyar Travel Group cancelled an IPO after failing to attract enough demand from institutional investors during a book-building process, where the offer price is set based on the strength of demand for the shares, rather than just being sold at a nominal value.

The Saudi IPO market has suffered considerably at the hands of the financial crisis.

An estimated 80 Saudi companies postponed public offerings worth a total of $19bn in 2009, according to the local NCB Capital, the investment arm of National Commercial Bank.

Of the kingdom’s seven flotations this year, four were mandatory due to the government’s regulatory requirements for insurance companies to list.