Record IPO Seen Fueling $10 Billion Saudi Stock Windfall

Saudi Arabia’s stock market, coming off its worst month in more than two years, is poised to benefit from a $10 billion windfall following National Commercial Bank (NCB)’s record share sale.

Investors may pump between $8 billion and $10 billion back into stocks when the lender returns the excess funds it received in subscriptions for the sale, according to Ahmed Badr, chief executive officer and head of MENA equities at Renaissance Capital Ltd. in Dubai.

Investors might have borrowed as much as five times their own money to bid in the offering, he said. The bank got requests for $83 billion of shares, 23 times the amount sold to Saudi citizens.

“It was such a large IPO, it sucked the liquidity out of the market,” Amer Khan, senior executive officer at Shuaa Asset Management, said by phone from Dubai on Nov. 4. “The impact will be immediate when the liquidity returns,” with banks, retail and consumer stocks likely to benefit, he said.

Saudi Arabia’s benchmark stock index tumbled 7.6 percent in October as NCB started offering shares valued at 13.5 billion riyals ($3.6 billion) to nationals.

The bank, which according to its prospectus, will return the excess cash on Nov. 9, sold shares as the kingdom prepares to open its $527 billion stock market and bond trading to foreigners.

All 15 industry measures in the Tadawul All Share Index declined last month. The petrochemicals gauge racked up the biggest loss, with a 14 percent slump, as oil prices slid amid concern that the global economy is faltering. Saudi Arabia is the world’s biggest crude exporter.

Opportunity

Brent crude declined to $82.44 a barrel at 12:41 p.m. in Dubai, poised for its lowest close in four years. The Tadawul All Share Index gained 0.1 percent.

The benchmark, up 13 percent this year, trades at an estimated price-to-earnings multiple of 13.9 compared with 13.7 for Dubai’s gauge and 15.9 for the Standard & Poor’s 500 Index.

“Valuations in Saudi Arabia aren’t uniformly attractive but we still see plenty of opportunity selectively,” said Khan at Shuaa. “It’s still the biggest economy in the region and regardless of oil prices there seems to be staunch commitment to spending and growth by the government.”

Saudi Arabia is benefiting from a stimulus program started by King Abdullah to boost employment and diversify the economy. Growth is forecast at 4.4 percent this year, the second-fastest pace along with the United Arab Emirates in the six-nation Gulf Cooperation Council after Qatar, according to data compiled by Bloomberg.

The kingdom said it will open its stock market to foreign investors next year. The country is working on rules to allow foreigners to invest in the debt markets, three people with knowledge of the matter said in September.

Discount

NCB offered 500 million shares, or a 25 percent stake, at 45 riyals apiece, raising $6 billion and valuing the lender at about $24 billion. The bank offered 300 million shares to citizens and allocated 200 million shares to the country’s Public Pension Fund.

Saudi listings usually rise by the daily limit of 10 percent for the first couple of weeks so most of the money that’s returned “will go into other stocks,” Ahmed Badr said.

The bank’s trailing 12-month price-to-earnings ratio is 10.6 compared with a multiple of 17.2 for banking shares, Ramez Merhi, director for asset management at Al Masah Capital Ltd., said by e-mail on Nov. 4.

The shares were sold at a discount to peers and “will be limit-up” until its valuations adjust “to at least the market averages if not higher,” Merhi said.