Saudi Fransi Capital, the top adviser for initial public offerings in the kingdom since 2012, expects the pace of share sales in the Gulf’s largest stock market to accelerate as equity valuations improve.
“The Saudi market is looking for new issuances and I think we’re going to have two big years for IPOs,” Chief Executive Officer Yasir Al-Rumayyan said in a March 27 phone interview from Riyadh. “Our deal pipeline is really big,” he said, declining to give more details on specific deals.
Saudi Arabian companies are joining counterparts across the Gulf planning to raise funds as asset values and investor demand increase. The investment banking arm of Banque Saudi Fransi, a lender part-owned by Credit Agricole, has advised on 7 equity offerings worth 8.4 billion riyals ($2.4 billion) since 2011, surpassing global banks such as JP Morgan Chase & Co and HSBC Holdings Plc on equity advisory work in the kingdom.
The Public Investment Fund, the Saudi pension fund, plans to sell a 15 percent stake in National Commercial Bank in an IPO. That sale could raise about 16 billion riyals ($4.3 billion), Asim Bukhtiar, head of research at Riyad Capital, the investment-banking unit of Riyad bank, said by phone March 20.
“We really hope to be part of that IPO,” Rumayyan said. “It’s going to be a massive one and there’s a lot of liquidity in the market to take it up.”
JPMorgan and HSBC Holdings Plc are among other banks planning to compete for a role in the share sale, the largest such deal in Saudi Arabia in at least 12 years, five people with knowledge of the matter said earlier this month.
Five Saudi Arabian companies offered shares last year, raising 793 million Saudi riyals, compared with 4.77 billion riyals of issuances in 2012, according to data compiled by Bloomberg. Saudi Fransi topped the IPO league table both years.
Improving prices are key to the renewed appetite for share sales, said Rumayyan, who joined the investment bank as CEO in 2011 from Saudi Arabia’s stock market regulator.
“Valuations have improved significantly and are still reasonable compared to other markets,” he said. “Now is the time for companies to come to the market.”
Saudi Arabia’s benchmark Tadawul All Share Index trades at more than 14-times estimated earnings, compared with about 19-times for New York’s Nasdaq Composite Index.
ACWA Power International, a Saudi Arabian energy producer, hired Saudi Fransi Capital to advise on an IPO that could raise as much as $1.1 billion, according to two people familiar with the matter. Rumayyan declined to comment on the deal.
Saudi Arabia’s stock market is the Gulf’s largest, with a market value of about $500 billion. Foreign investors cannot trade directly on the exchange, instead they have to invest through swaps or funds.