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Sipchem IPO sets trend for petrochemical sector
DUBAI — Typically, petrochemical companies in the Middle East have not accessed capital markets when seeking additional funding. But in Saudi Arabia, home to several petrochemical companies including the world's largest, Saudi Basic Industries Corporation (Sabic), this may be changing.
Just last week, on September 18, Saudi International Petrochemical Co. (Sipchem) closed its initial public offering for 45 million shares, or 30 per cent of its capital. With each share priced a SR55, the transaction size was nearly SR2.5 billion, placing it among the top five largest IPOs in GCC history. At the time of closing the IPO was 1.65 times oversubscribed and raised just over SR4 billion.
According to Oscar Silva, head of corporate finance & advisory at the National Commercial Bank (NCB) in Saudi Arabia which acted as financial advisor, lead underwriter and lead manager, the deal stands out because it is unusual that a petrochemical company had chosen to go the IPO route. Out of 18 Saudi public equity capital market transactions, IPOs and rights issues, only three have involved Saudi petrochemical companies — Sahara, Yansab and Sipchem, said Silva, speaking at the 5th International Petrochemical Conference in Dubai.
"Out of $9.3 billion raised through public offerings, only $1.3 billion has been raised by petrochemical companies, less than 15 per cent of the total," he said. "Capital markets have been used as an exit mechanism for shareholders rather than as a fundraising tool for expansions," he added.
Yet there is a clear need for petrochemical companies to tap into capital markets because of their investment requirements, particularly for the financing of new projects, he said. However, in doing so there are a number of challenges companies must face, the main one being the lack of institutional investor participation in IPOs. To date, there has been only one IPO that has had institutional investors, Silva said. Involvement of an institutional investor helps to strengthen shareholder stability, promote a proactive approach with management, especially in relation to corporate disclosure and corporate governance, he explained. Another challenge petrochemical companies must face is the requirement to have government participation in projects to qualify for PIF funding.
Lessons learnt from recent IPOs in Saudi Arabia show a need for a seamless relationship with the regulatory authorities (CMA) and prompt and adequate disclosure on material issues which may affect the public offering, said Silva. It is also necessary to address share price expectations in light of market conditions, he added.
Silva emphasised that proper involvement of the regulator is beneficial not only to achieve protection to investors but also to ensure minimum standards of fairness, efficiency and transparency. Moreover, he said, the requirement of IPOs to be underwritten has a strong impact on the way transactions are executed.
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