Transparency key to Saudi stock market stability

Published September 13th, 2006 - 03:36 GMT

Corporate governance, transparency and long-term obligations to shareholders are key to sustainable growth according to experts speaking at Saudi IPO Summit 2006. The conference, which is due to take place on 19-22 November at the Al Faisaliah Hotel in Riyadh, will debate the whole spectrum of issues concerning IPOs with a special focus on feasibility and the responsibility of companies once listed.

The event, supported by the Riyadh Chamber of Commerce & Industry, is aimed at boosting overall investor confidence after volatile half-year results on the Tadawul All Shares Index (TASI). Memories of the bullish performance of the Saudi stock market in 2005 have long since faded. In late February this year, shares hit 20,634 points and since then the market has been heading south, plummeting to a 14 month low of 10,046 points, less than three months later, with US$ 350 billion wiped off share values. Shares now seem to have bottomed-out and at the closing bell on 10th September, the TASI stood at 11,649 points, a comfortable 16 per cent up on the year’s low but still 44 per cent off February’s high.

One critical factor highlighted by traders was that there were still less than 90 stocks available a paradox considering the colossal amount of funds seeking investment opportunities. Ironically, underlying economic indicators are still strong, 6.5 per cent economic growth, excess liquidity, a current account surplus of US$ 87 billion and positive corporate results but investor confidence still remains severely eroded.

The Saudi government reiterated a range of initiatives aimed at stabilising the market and in a recent move the Saudi Arabia’s Capital Market Authority, introduced a mandate for listed companies to disclose any information that was likely to move share prices. IPOs have also been integral to government initiatives, in particular, family-owned businesses, who make-up 90 per cent of the private sector were to be encouraged to go public, broadening the number of listed companies and therefore leaving the market less vulnerable to erratic swings.

More than 30 initial public offerings were expected to be introduced within the next 12 months, but due to the sluggish performance of the market a number have been delayed, clearly waiting for a more stable investment climate.

Deep Marwaha, Conference Manager for Saudi IPO Summit said, “Corporate governance and transparency are key to investor confidence and essential to sustaining steady market growth. Private family-owned companies in Saudi Arabia represent great potential for public offerings, but disclosure and internal audits are often alien to their company culture.”

A dedicated workshop will be conducted by Global Investment House, a leading investment bank in the region, to address IPO feasibility and how to assess not only whether private entities are ready to list, but the responsibilities that come with being a listed company and the desire to accept long-term obligations. Public disclosure of earnings, minutes of shareholder meetings and capital increases are all an integral part of openness and transparency which helps to curb insider trading and boosts investor confidence.

“To put the size of the Saudi bourse into perspective, it represents more than a third of the total capitalisation of all Arab stock exchanges. To achieve sustainable growth and therefore provide stability throughout the region’s other stock markets, private companies, investment bankers and government regulators, must gain a common understanding of IPO feasibility and implement the prerequisite standards required to go public,” commented Rajiv Nakani, Head of Investment Banking, Global Investment House.

Besides corporate governance and transparency, debate and discussion amongst investment experts, regulators and market leaders will centre on improved regulatory and industry standards, reporting standards and internal audit, management changes and restructure. It will also address the costs associated with IPOs and the long-term obligations of public companies as well as the critical factors underpinning oversubscriptions, over-pricing and macro-economic issues affecting IPOs.

An impressive line-up of international and regional financial and investment industry experts are expected to speak at the event including amongst others, HE Dr. Fawaz Al Alamy, Deputy Minister of Commerce & Industry, KSA, Dr. Abdulrahman Al Zamil, Chairman, Zamil Group, Yassir Rumayyan, Head of Listing, Capital Market Authority, KSA, Abdulilah Aldrees, CEO, Aldrees Petroleum And Transport Services Company, Ioannis Karapatakis, Managing Director - Global Investment Banking Advisory, HSBC, Omar M. El Quqa, Executive Vice President – Corporate Finance & Treasury, Global Investment House, Brad Bourland, Chief Economist, SAMBA and Graham Dallas, Head of North America, Europe, MENA for Business Development, London Stock Exchange.


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