Saudi authorities step in to support post-crash bourse

The secretary-general of the Supreme Economic Council, Abdul Rahman Al-Tuwaijeri, has been made acting head of the Capital Market Authority. Expatriate residents are now permitted to invest in the stock market though not as yet in possibly lucrative initial public offerings. Joint stock companies have also been permitted to split their shares five for one.

A government promise of a risk-free fund, to encourage those on low incomes to invest up to $133,000 in companies with guaranteed protection of any capital invested for a period of two years, is expected to attract up to 3 million potential investors.

The fragile Saudi bourse needs all the help with the market's Taduwal All-Share Index plummeting more than nine per cent in Mid-May to 10,767 points almost half its value from a record 20,634 points less than three months ago.

Announcement of first quarter 2006 profits by Saudi Basic Industries Corporation down 17 per cent year-on-year precipitated a slide in SABIC's share value and in the whole market index.

IPOs continue

Surprisingly, has been no let up in initial public offerings. Forty per cent of the shares offered by Saudi Research & Marketing Group were taken up within a day and the issue was nearly four times over subscribed when it ended after a week on April 17.

There is more to come. In March, Prince Alwaleed ibn Talal, chairman of Kingdom Holding, said that 30 per cent of the company would be offered for public subscription in 2006 and that Kingdom also intended to invest up to $2.6 billion in other Saudi stocks.

In May, Emaar Economic City was licensed as a Saudi shareholding company allowing it to float its shares. The Saudi-Dubai joint venture is developer of a new 55 million square metres urban and industrial area at Rabigh, 200 kilometres northwest of Jeddah.

Six phases estimated to cost $27 billion are planned that will include a new seaport, heavy and light industries, services and residential areas that are planned to offer a prime location for foreign direct investment into the kingdom.

Biggest IPO

The share float for the new King Abdullah Economic City will be one of the largest ever offered in the region with 255 million SR 10 shares expected to be offered to the public later this year by Saudi British Bank which is underwriting the issue.

But even with this and other IPOs in the pipeline the fact that there will still be less than 90 stocks available for trading is one of the biggest problems for the Saudi bourse.

Since this situation this can only be rectified over the long term with more enterprises converting to joint stock status and coming to the market it seems trading conditions could remain volatile for the foreseeable future.