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Something is helping freeze Saudi business activity- Here it is

On November 6, 2017, the Olayan family, which runs one of Saudi Arabia’s biggest conglomerates, put on hold its plans to sell shares in some of its local assets.

Bloomberg quoted people related to the matter as saying that Olayan Financing Co., which controls the billionaire family’s investments in the Middle East, decided not to proceed with an Initial Public Offering of a holding company of 20 local units approximately.

“Plans for the sale of the holding company, which may be worth as much as $5 billion, could be revived in the future,” it said.

Watch: $33bn personal Saudi wealth at risk; dozens more accounts frozen in probe

Read: Did anyone see the Saudi clampdown on corruption coming?

The Olayan Group

Established in 1947, the Olayan Group, a private multinational enterprise, is an international investor with offices in Saudi Arabia, Europe, and the US.

The Group comprises more than 40 companies and is centered in Saudi Arabia, where the Group originated in 1947. They are engaged in distribution, manufacturing and services. Many of these companies operate in partnership with leading multinational or regional firms.

Valued at more than $10 billion as estimated by Bloomberg, the group has property investments across Europe and the United States and bought last year 550 Madison Avenue in Manhattan, known as the Sony Tower, in partnership with London-based Chelsfield, according to Olayan’s website.

On May 3 2017, the Olayan family announced its plan to list at least 30 per cent of its Saudi business in a sale that could value the company at several billion dollars.

“The government has been keen to encourage more family businesses to consider listing as a way to boost investment in capital markets and improve corporate governance,” as reported by Reuters.

Moreover, two of the conglomerate’s senior figures, Lubna and Khaled Olayan, were both close to retirement, and a listing was a way of ensuring succession planning, according to Reuters.

But why did the Olayan family decide to put on hold its IPO?

 Could Aramco renege on the IPO plan?

Anti-corruption crackdown

The decision to put the IPO plans on hold came after the beginning of an anti-corruption move by Crown Price Mohamed Bin Salman on November 4.

Saudi Arabia has come down heavily on the issue of corruption and detained a group of high-profile people.

There were instances in which Saudi nationals have complained against unchecked corruption in government and accused some people of misusing public funds.

The corruption probe is widening and Saudi’s monetary authority ordered banks in the Kingdom to freeze the accounts of dozens of individuals who are not under arrest, and the Central Bank in Saudi has put up $33bn of personal wealth at risk for the richest.

Hesitations over IPO

The Olayan group is not the only one to hesitate with their IPO plans.

There have been rumors recently that Aramco may put aside its IPO in favor of private share placement, with China showing itself to be a clear candidate.

However, Aramco CEO, Amin Nasser, stepped up quickly to deny those rumors and assure that the IPO is still planned to take place in the second half of 2018.

The plan to float five per cent of state-owned Aramco goes in parallel with the Kingdom’s plan to diversify the economy and reduce its dependence on oil.

The IPO could infuse much needed funds to compensate for losses incurred as a result of low oil prices, which have led to severe budget deficits in Saudi and other oil-dependent nations since 2014.

The plan is to sell five per cent of the company, valued at $2 trillion, thus earn $100bn in revenues. Then, the profits from the IPO will go to the Saudi Public Investment Fund (PIF), which will allow the PIF to increase its investments at home and abroad.

The Wall Street Journal reported this year that the company had long been planning the Aramco IPO for 2018, with New York and London markets as prime targets, but that a listing on Riyadh’s Tadawul Stock Exchange in 2019 was part of the thinking as well, even though Tadawul does not have the level of sophistication for such large transactions.