There is ‘real excitement’ among global investors about Saudi capital market, Riyadh forum is told

“We’re trying to adopt the concept of enabling regulations instead of deregulations, and this is one of the things that you might find different in the Saudi development endeavour,” said Abdullah Binghannam, the deputy of financing and investment at Saudi financial regulator Capital Market Authority (CMA).

“Whereas deregulation could be a choice in different parts of the world, and while we think it’s very important, we believe that international investors are into confidence before everything else, [and] confidence is viewed as the catalyst for international inflows,” he said.

“Of course, [international investors’] allocation was less than that number because of the higher demand from local investors, but this is a very important signal for how the opening up is serving the raising of capital,” he added.

Binghannam also said that growing the kingdom’s debt capital market and asset-management industry, as well as rolling out new tools to support businesses in the capital market, will be the CMA’s top priorities in the future.

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“There is real excitement in terms of what is now happening in the Middle East, but specifically in the Saudi market,” said Claire Suddens-Spiers, partner and co-head of global equity capital markets at Rothschild & Co. “The world is watching and the world is paying attention, and more importantly, taking part in what we’re seeing now as a real sustained growth in terms of the market in this region.”

The Saudi market has grown in a very robust manner because it has a very strong domestic investor base, both retail and a growing domestic asset management base, said Richard Cormack, co-head of Europe, Middle East and Africa equity capital markets at Goldman Sachs.

“The kind of regulatory framework that CMA has put in has been very strong and has obviously encouraged issuers to come to market, and that has worked extremely well,” he said.

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However, Cormack also warned about overexcitement among issuers and investors as a potential weak link in the market. He pointed out that over the past year, companies that have gone public on the Saudi stock exchange went up nearly 40 per cent on the first day, and close to 70 per cent within the first month. This has encouraged investors to bet on more IPOs.

“If that cycle gets broken, and we have seen that break in other markets … then that continued enthusiasm could get dented, at least temporarily, and then it needs to rebuild itself,” Cormack said.

However, he noted that the fragility is cyclical rather than structural, and maintained that the market is vibrant and attractive, offering a price-to-earnings multiple of 21 times. The price-to-earnings ratio measures a business’s share price relative to its per-share earnings.

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“There’s still some evolution from a regulatory perspective to facilitate [the successful listing of foreign companies], but global businesses that have Middle Eastern ambitions or regional shareholders, I can see that being a trend over time,” Cormack said.