Interpreting Middle East Economic News and Analyzing Market Trends

Is it too late to join the IPO party?

Saudi Tadawul

Saudi Arabia’s Tadawul is the Arab world’s largest stock exchange.

 

The IPO has been set for Saudi Arabia’s National Commercial Bank’s (NCB), the largest bank in the country and one of the largest banks in the Middle East. If all goes well, the IPO will be the second largest IPO globally for 2014 after Alibaba, which debuted last month.  Has the IPO market topped or is this market just getting warmed up?

   

   

National Commercial Bank, the largest lender in Saudi Arabia, plans to raise 22.5 billion riyals ($6 billion) from the biggest initial public offering this year after Alibaba Group Holding Ltd.

The bank will sell 500 million shares at 45 riyals apiece, according to a statement on the Saudi Stock Exchange’s website. Subscription for the IPO will take place between Oct. 19 and Nov. 2. The sale is restricted to Saudi investors, with 300 million shares allocated to individuals and the rest to the kingdom’s Public Pension Agency.

The sale will be the second-biggest of the year globally, trailing Chinese e-commerce business Alibaba’s (BABA) $25 billion IPO last month and ahead of Japan Display’s $3.1 billion March IPO, according to data compiled by Bloomberg. It will also be the largest in the Middle East, surpassing the $5 billion raised by Dubai’s DP World Ltd. in 2007, according to the data.

“This is a big deal for the Saudi market,” Mohammed Alsuwayed, a Riyadh-based financial analyst and partner at SPT Investors LLC, said late yesterday by phone. “The pricing represents good news for the Saudi public and it will reflect positively on the market’s performance in the next few weeks.”

NCB, as the bank is known, is the only unlisted lender among the kingdom’s 12 domestic banks. The bank said on April 9 it appointed HSBC Holdings Plc and Gulf International Bank BSC as financial advisers for the sale. The lender is offering 25 percent of its capital, valuing it at about $24 billion, according to Bloomberg calculations.

Total assets at NCB were 377 billion riyals at the end of 2013. It was also the most profitable bank in the kingdom last year, according to data compiled by Bloomberg.

Saudi Arabia is preparing to open up its stock exchange valued at about $590 billion to foreign investors in the first half of next year, spurring investor interest in the nation. The Capital Market Authority in August proposed rules that would allow foreign investors to hold as much as 10 percent of the value of the Tadawul stock exchange.

Read the full story from Bloomberg.

    

Two other high-flying IPOs in the region this year were Emaar Malls Group, a spinoff of Dubai property developer Emaar Properties and a new retailer with no operations called Marka, which also listed in Dubai.  After years of low trading volumes and poor performance, stock markets in the GCC region have been re-energized over the past year.  Investors, in turn, have become excited over every new IPO.  While NCB is a well-established bank with a huge and profitable operation, some of the other IPOs and planned IPOs aren’t as attractive. 

Is this a sign of more to come or will the market fizzle out before it has a chance to get started?

Elliott Wave International timed it right when it called a global stock market top on September 19th 2014.  The Dow Jones Industrial Average (DJIA) hit a record high that day to close at 17,279.74.  Remember this number well because it will remain a record high for the DJIA for many years to come.  Since then, the DJIA, along with all other world stock markets have been falling.

     

As of today:

  • The Dow has given up all its gains for the year and is now it the red (down 2% for the year)
  • The S&P 500 has done a little better, it’s still up 1.7% for the year, but looks like it might end up in the red before this week is over
  • Germany’s DAX is down 8.8% for the year
  • The UK’s FTSE 100 is down 7.5% for the year
  • Japan’s Nikkei 225 is also down 7.5% for the year
  • Hong Hong’s Hang Seng was up 8.4% for the year just one month ago and now it’s given up all the gains for the year

     

All of these markets were up and many were at record highs.  It looks like the tide has finally turned on these markets exhausted of central bank stimulus.  A correction is much need to bring the markets back down to reality.  The fear is, however, that if reality hits the markets they will realize just how bad things are and we will end up in freefall territory as we did back in 2008.

     

The Middle East is no different than the rest of the world, but tends to lag the trend.  The same goes for the IPO craze.  The Alibaba IPO was the peak of the IPO market and the NCB IPO will be the peak in the Middle East.  Let’s not forget that while the S&P, Dow, FTSE and others were hitting all-time highs this year, markets in the Middle East never recovered from their all time highs;

   

The high for Dubai’s DFM market was back in 2006.  We covered it in previous posts here and here.

The high for Saudi Arabia’s Tadawul market was way back in 2005.

In 2013, the DFM was up over 100% and opened 2014 with a bang, rising as high as 60% before giving up half the gain.  The DFM today is still up an impressive 33% for the year, but the year is not over yet.

Now that the euphoria has settled following the announcement that Tadawul will finally open up to foreign investors next year, the market is struggling to hang on to its gains for the year.  Though up over 16% so far this year, much of the earlier gains in 2014 have already been given up.  Falling oil prices are not helping sentiment either.

    

Bottom line:  the IPO party is over for now and do not expect global stock markets to resume their bull run any time soon.