Saudi market plans IPO in 2018
Investors talk as they monitor screens displaying stock information at the Saudi Stock Exchange (Tadawul) in Riyadh November 12, 2014.
Dubai - Tadawul set to become second Arab market after DFM to list its shares.
The Saudi Arabia's Tadawul will become the second Arab stock market after Dubai Financial Market (DFM) to list its shares as it announced plans for initial public offering (IPO) in 2018.
In 2014, Arab world's largest stock exchange with a market capitalisation of $420 billion said that it is looking to go public but didn't provide any timeframe.
"It intends to Saudi Stock Exchange (Tadawul) start readiness to put part of its shares for public subscription in 2018 and expected procedures, after obtaining the necessary approvals," the bourse said in a statement.
"It is the only body authorised to carry out the business trading in securities trading in the kingdom occupies as advanced positions among emerging markets in terms of liquidity and value traded and trading events will be announced the readiness of the IPO, according to its development," it added.
Its planned listing follows the worst year for Saudi stock market since 2008, even after the market allowed foreign investors to trade stocks directly for the first time in June 2015. Saudi Arabia's finances have been under pressure after its main source of revenue, oil, sank to the lowest level in 11 years. The government on Monday announced that it would cut spending and ease subsidies in 2016.
"They are trying to engage the private sector in the economic expansion, and they don't want to rely on fiscal budget alone," said Mohammed Alsuwayed, the head of capital and money markets at Adeem Capital in Riyadh, told Bloomberg.
"There's going to be a restructuring of the market in Saudi Arabia, it's not just the Tadawul IPO," Alsuwayed added.
Under the leadership of the Custodian of the Two Holy Mosques, King Salman bin Abdulaziz of Saudi Arabia, the government announced plans to privatise "several sectors," the Finance Ministry said in a statement this week.
The Tadawul All Share Index dropped 17 per cent in 2015 through Wednesday. The exchange's former chief executive officer Adel Al Ghamdi in May 2014 announced plans to hire banks for an IPO.
For all the pain low oil prices are causing Saudi Arabia's financial markets, at least one area is flourishing.
The number of active initial public offering-focused funds in the kingdom more than doubled in 2015, as investors respond to the nation's efforts to develop its capital markets and boost participation from institutions. The funds managed more than SR4.9 billion as of Wednesday, compared with almost SR2 billion at the end of last year.
Investors are anticipating rule changes that would see Saudi Arabia allocate most of its often-lucrative IPOs to big money managers. The Capital Market Authority (CMA) is trying to curb price swings of a stock exchange dominated by retail investors, as the country continues a bid to diversify the economy away from oil.
The $420 billion bourse opened directly to foreign institutions in June and has since lured the likes of BlackRock and Ashmore Group.
"The new regulations are favouring anyone who goes through an IPO fund, whether you're a retailer or institution, to get a bigger chunk of the IPO," said John Sfakianakis, a Riyadh-based Middle East director at Ashmore, which set up its own IPO fund in March.
In 2015, sixteen IPO-focused funds were set up in Saudi Arabia, the most on record, bringing the total to 27. The CMA published draft rules for public listings this month. The regulator in 2015 said it aims to reduce stock market volatility by attracting institutional investors.