How Saudi Arabia’s public listings are refueling investor confidence

After decades of being synonymous with oil-based wealth, Saudi Arabia’s perception across the globe is changing as the Kingdom’s juicy dividends has investors flocking to its shores in the hopes of getting in on the action amidst an IPO boom.

Saudi Arabia has already dominated 22 of the 33 listings that the region has witnessed in 2022. It’s no surprise, therefore, that the Saudi Stock Exchange has correspondingly witnessed a 30% increase in shares owned by international investors during 2022. This mouth-watering interest in Saudi listings is unlikely to dissipate anytime soon.

For only the second time since the ‘Great Recession’ of 2008-09, initial public offerings (IPOs) in the Middle East are far outpacing IPOs in Europe. This has happened only once before and even back then, Saudi Arabia was in the spotlight after Saudi Aramco pulled off a showstopper $2 trillion IPO, celebrating the world’s largest listing in 2019.

The Kingdom’s “power of attraction” comes down to two primary facets: The size and depth of its stock exchange as well as the sheer magnitude of its gross domestic product (GDP), both of which are projected to pave the way for more IPOs, according to a recent study by technology venture capital fund STV.

In 2022, the appetite for Saudi IPOs has been nigh unquenchable. In Q1 2022, Saudi pharmacy chain Nahdi Medical Co witnessed demand for all shares on offer within hours after opening books on its Riyadh debut, resulting in a $1.36 billion IPO, and marking the Kingdom’s biggest IPO since Saudi Aramco.

In Q2 2022, the Saudi Home Loans Company raised $160 million, being oversubscribed by 50 times, while the Retal Urban Development Company raised $384 million with its institutional order book oversubscribed by 62 times on Tadawul. Meanwhile, the Nomu-Parallel Market welcomed three IPOs, raising $40.8 million in the second quarter of 2022.

There’s no doubt that the trend of Saudi listings being significantly oversubscribed is here to stay. Most recently, the Marafiq IPO has drawn $52.5 billion in demand after the Saudi Arabian utility organization priced its listing at the top of the range to raise $897 million. This could well be the Kingdom’s next big IPO in 2022 after the Nahdi Medical Co listing.

The future pipeline of IPOs is expected to be equally robust. The CEO of Saudi’s Tadawul stock exchange has already alluded to 18 approvals that will “materialize within the next three months” and more than 70 listing applications that are currently being reviewed by the bourse and the market regulator, during an interview with Bloomberg on the sidelines of the Future Investment Initiative in October 2022.

The Driving Force

For those who haven’t read the signs and are raising eyebrows over the demand, it’s probably time to take cognizance of the Kingdom’s Vision 2030, which is a transformative strategy aimed at restructuring Saudi Arabia into a diversified and sustainable economy focused on enhancing productivity and increasing the contribution of the private sector.

Saudi Arabia’s upsurge in demand for Initial Public Offerings (IPOs) is a direct reflection of efforts to increase the impact of non-oil-related industries on the GDP.

Despite global macro-economic headwinds, inflationary pressures, and rising interest rates, which have affected IPO sentiment across other global markets, Saudi Arabia’s business activity in the non-oil private sector has retained a commendable pace of growth.

According to the Kingdom’s Finance Ministry, Saudi Arabia is expected to mark 8% growth in its real GDP this year, with the real GDP related to non-oil activities projected to record growth of 5.9% in FY 2022.

As a result, global investors have reiterated their confidence in the long-term economic growth of the Kingdom, its transformation plans, and have demonstrated an appetite to attain listing gains, resulting in increased IPO demand.

IPO Interest Outshines the Pandemic

Despite IPO volumes and values declining significantly in the majority of other global markets, the MENA region has continued to pave its own path with a steady stream of new listings.

In 2020, most companies were trading above their listed prices, an indication of a bullish phase that has not slowed down.

In 2021, the Kingdom witnessed 20 public listings, including nine on the Saudi Stock Exchange (Tadawul) and 11 on Nomu. Through 2022 and 2023, the number of IPOs is expected to double to 50.

In 2024, Saudi Arabia is planning another giant listing of its $500 billion NEOM megacity project, which will add more than $266 billion to the Kingdom’s stock market.

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Value Derived from Listing Technology Firms

Saudi Arabia has developed a comprehensive set of policies and strategies to harness the power of digital transformation and leverage the untapped potential of cutting-edge technology innovations. As such, the Kingdom has prioritized technology as a key driver of transformation, with its digital spending climbing past the $3 billion milestone annually.

The Vision 2030 blueprint has further accelerated the tech push with giga-projects such as NEOM setting the stage for a slew of next-generation tech applications from purpose-built data centers, AI, and advanced robotics to intelligent analytics, AR, VR, mixed reality simulations coupled with customized and personalized consumer-facing solutions.

Similarly, the Saudi Stock Exchange, through its regulated markets and state-of-the-art trading technology has enabled companies to access markets, raise capital, and establish a liquid market in the trading of their securities.

On cue, a number of companies have gone public. Perfect Presentation for Commercial Services Company (2P), for instance, recently opened its offering period within its Initial Public Offering (IPO). Saudi Azm for Communication and Information Technology Co. also recently debuted on Nomu.

The number of tech listings are set to witness an uptake and help propel the Kingdom’s future growth in line with market demand. Having technology companies listed will help greatly in two major areas:

Ensure sustainability of the business

Growth is crucial to long-term survival of a business. Being able to access capital markets to raise funds to expedite growth and build up the resources needed to develop a business are essential. One of the evident benefits of having an IPO is that it increases capital that can be used in the development and expansion of the business.

Apply proper governance and control

The world is increasingly becoming ESG-centric and therefore sustainable reporting will enhance the credibility and visibility of technology companies IPOs. Implementing strong corporate governance practices and holding up under the intense scrutiny of market regulators will remain crucial to success.

The Kingdom’s maturing digital sector is encouraging the listings of technology companies and the success of IPOs on the Saudi Stock Exchange and Nomu highlight the strong investor appetite for opportunities in Saudi Arabia’s digital transformation sectors.

Looking ahead, IPOs are definitely providing an opportunity to capitalize on positive market dynamics, providing investors with a great opportunity to be part of a bountiful business ecosystem. They are also proving to be strong contributors to the Vision 2030’s objectives of accelerating the sustainability of businesses within a well-regulated business environment safeguarded by proper governance and control structures.