First-ever IPO for the DIFX: Kingdom Hotel Investments

The news that Saudi Arabia's most famous investor is to hold the debut IPO on the DIFX is a massive vote of confidence in the new stock market. It is something of a leap of faith, as Kingdom Hotel Investments will become only the second share listed on the DIFX, ending the lonely life of the first listed stock Investcom.

So why choose to list on the DIFX rather than another regional exchange, or go to a place like the London Stock Exchange for an IPO? Investcom, for example, chose to IPO in London with a secondary listing in Dubai. Kingdom is going for the IPO in Dubai and will list global depositary shares in London.

'As a regional company we did not want to list in London,' Chief Executive Officer Sarmad N. Zok told AME Info.

'The DIFX has been through its soft opening phase and is regulated to world-class standards, and will enable us to tap into regional liquidity. At the same time the GDS gives us exposure to investors who want to trade through the London Stock Exchange.'

26 properties

To step back a moment, Kingdom Hotel Investments has investment interests in 26 properties in 13 countries, of which 15 are operating hotels with a total of 3,262 rooms and 11 hotels that are under construction. It should not be confused with the much larger Kingdom Holdings which is the holding company for Prince Alwaleed's investment portfolio.

Kingdom Hotel Investments is presently 55% owned by the Prince and the balance by a number of prominent Gulf businessmen. The group was established in 2000 and owns hotels managed by the Four Seasons, Movenpick and Fairmont. For the nine-months to end of September 2005, KHI posted a profit of $8.2m on revenues of $43.7m up by 47% and 45% respectively on the same period of the previous year. Said Mr. Zok:

'We intend to use the proceeds of the IPO to finance the expansion of our portfolio of hotel investments through acquisitions and new developments and for other corporate purposes. We are raising equity on the DIFX so that we can continue to tap the capital markets in the future, not necessarily through our shareholders but through bonds for example.'

An important point to note is that Prince Alwaleed and his fellow shareholders in KHI are not selling any shares. They are raising new capital. But the IPO will put a value on their existing holdings in KHI, and publicly listed equity usually trades at some premium to privately held equity.

Without a share price or any indication of the share issue size, except that DIFX rules prescribe a minimum of 25% of group capital, it is hard to form any judgment on whether the IPO will prove a good buy.

Not a typical Gulf IPO

The IPO prospectus will be eagerly awaited. But with Deutsche Bank and Morgan Stanley as joint global coordinators this IPO will be priced according to standard international practice, and is unlikely to be under-priced significantly like traditional Gulf IPOs.

Thus the profits available to initial investors are not likely to be very large. However, whether local investors will actually appreciate this subtlety is something else. Last week more than one million applicants applied for the Al Rayyan Bank IPO in Qatar, and such enthusiasm to buy any issue available will more than probably spill over into the IPO for Kingdom Hotel Investments.

Indeed, the magic of Prince Alwaleed's track-record and the benefit of an asset-backed company with a dynamic chief executive and considerable ambition seem set to make this IPO a thumping success for the KHI and DIFX. Whether it is as good for the public will remain to be seen for the pricing is bound to be benchmarked against regional GCC markets which are currently trading at or close to all-time highs.