Saudi Arabia’s IPO Outlook
Today, Saudi Arabia is witnessing a huge leap in demand for Initial Public Offerings (IPOs), a reflection of the efforts in the country to strengthen its economy in line with Vision 2030, by increasing the contribution of non-oil-related industries to the GDP and by improving the business environment, said Imad Matar, PwC’s Transaction Services Leader in The Middle East.
This unprecedented demand for IPOs in Saudi is fueled by investors’ confidence in the long-term economic growth, transformation plans, and shareholders’ appetite to attain listing gains.
Strong performance in 2021
In 2021, there were 20 public listings of Saudi companies (9 on Tadawul and 11 on Nomu). This is expected to jump to around 50 listings this year and in 2023.
Saudi was amongst the first markets in the Middle East to show strong recovery signals post-pandemic. This has strengthened investors’ long-term confidence and trust in the key players operating across a variety of sectors, especially within the leading sectors during the pandemic.
Listing of government-owned assets
In line with Vision 2030, we are currently witnessing a massive transformation within the Kingdom. This will only accelerate the listing of government-owned assets within the infrastructure sector as part of Saudi’s privatization initiatives, and fuel further activity in the technology, healthcare, food processing, and education sectors, which are currently underrepresented but have boomed during the COVID-19 pandemic. The push toward the digital transformation of business models and technology capability-building has ensured that technology-focused deals remain at the forefront.
What investors look for
Ideally, companies that demonstrate solid financial performance and implied value, have a strong equity story and a clearly defined strategy, have a leading corporate governance, have a good sense of quality management and solid HR systems and cultures, and can effectively and efficiently report financial processes while complying with tax regulations, can be considered ready to hit the IPO milestone. There must, also, be interest from investors (domestic and international) for this move to be successful.
Liquidity not an issue
Some would worry that new IPOs might impact the liquidity of markets. However, as Financial Due Diligence (FDD) advisors, and through our experience from the latest IPO listings we have been involved in (10 successful listings in the past 12 months), the demand and oversubscription on those listings have not suggested any liquidity challenges, especially on high performing companies with strong potential.
Looking at various industries, for example, a food company successfully completed the offering to individual investors, with an 11.9 times oversubscription. Finally, a Saudi utility developer completed the institutional book-building process for its IPO, receiving bids worth 248-times more than what it was issuing.
Thus, any ‘jewel’ asset coming to market (whether government or privately owned) will draw enough demand as long as the investors are clear on the asset’s equity story.
At PwC, we are proud to be advising our Saudi clients on their IPO ambitions and remain committed to economic diversification as well as the wider Vision 2030. This rise in IPOs in the Kingdom, not only reflects the efforts the country is exerting to strengthen the economy as part of its Vision 2030 but also emphasizes the Kingdom’s success in recovering from the pandemic, especially with the increased interest and participation of foreign investors.