While all the focus has been on mega deals during the recent visit of President Trump to Saudi Arabia, the news that one of the largest privately held Saudi companies Olayan Group is considering an Initial Public Offering (IPO) is a significant development as it could herald many more such initiatives by other Saudi family businesses.
This is important as the ambitious Saudi Vision 2030 places great hope and emphasis on the Saudi private sector to become the future engine of growth and job creation and a major listing on the Saudi Tadawul will add depth to this stock market. The kingdom is trying to transform itself into a financial powerhouse by expanding the local stock market and is also contemplating selling shares of Saudi Arabian Oil Co and the exchange itself.
Olayan Finance has hired Saudi Fransi Capital as financial adviser for the planned IPO of some of its local assets on the Saudi Stock Exchange. The financing firm, which runs Olayan Group’s business in the Middle East, may set up a new holding company for 20 of its units, which could be worth as much as $5 billion. Shares in the holding company would then be sold and listed on Tadawul according to media reports.
The planned IPO would be the company’s first offering of a Saudi business since 2000. The IPO would certainly be very attractive to local and regional investors as well as to the Foreign Qualified Investors who are a re authorized to purchase Saudi shares.
Olayan Financing manages more than 40 businesses in the Middle East, including the Coca-Cola Bottling Company of Saudi Arabia, the regional Burger King Franchise, Gulf Union Foods Co., Arabian Paper Products Co., and Olayan Real Estate Co. Ltd. Founded by Sulaiman Olayan in 1947, Olayan Group was valued at more than $10 billion by the Bloomberg Billionaires Index in 2015.
Mega government-to-government deals do catch the headlines but it is the more methodical transformation of large and small private sector businesses that can sustain Gulf economies in the long termDr. Mohamed Ramady
Most liquid market
Since the beginning of the year, interest for IPOs in Saudi Arabia and the Middle East has grown. Tadawul, which had a market capitalization of about $400 billion during the first quarter of this year, is considered the most liquid market in the Arab world and the planned Olayan IPO will encourage other Saudi family businesses to finally go public as this will bring benefits to many parties .
First, the family businesses will be able to access new capital from their listing, enabling them to expand in their line of business or through mergers and acquisitions and relieve Saudi banks loan commitments. At the same time, new board and company governance will allow for transparency and an investor say in the company business through shareholder general assembly meetings.
The Gulf is replete with anecdotes of family businesses losing momentum and growth once the founding member and next generation have either passed away or retired and a younger, less focused generation take over the helm, despite possessing more educational qualifications than their elders. Some have even ceased to exist, following family inheritance disputes once the founders have passed away and the family business portfolio is not properly managed.
Family businesses have created so-called Family Governance Boards to ensure that the business survives and family members know their roles and responsibilities, but in the majority of cases this is not done. While some feel that restructuring family businesses is a matter for these businesses alone, others argue that the impact of closure or mismanagement is a national issue given the major impact these family businesses have on Gulf economies and that going public ensures both their survival and continuity in economic growth and general prosperity.
Parallel stock market
It is not only the major Saudi family businesses that are seeing the benefit of a stock market listing as the Saudi Stock Exchange was the first in the Gulf to launch the Nomu or Parallel Stock Market giving a chance to the small and medium sized enterprises – SME’s – to list and benefit from capital access.
The launch of the Nomu market in February 2017 by an initial seven SME companies was greeted with investor demand and raised nearly SR 1.9 billion, with the new listed companies oversubscribed by many multiples. This has encouraged some further financial innovation with news that Osool & Bakheet Investment Co. (OBIC) launched the first trading equity fund on Saudi Arabia’s Nomu Parallel Market.
The open-end fund will focus on medium and long-term investments in companies over six-month to two-year periods and that the Fund is also targeting stocks of small and medium cap companies on the Saudi Stock Exchange with market capitalization of SAR 15 billion maximum.
Mega government-to-government deals do certainly catch the headlines but it is the more methodical and painful transformation of both large and small private sector businesses that can sustain Gulf economies in the long term. The Olayan IPO has shown that, despite a large and well-diversified business portfolio, even such family business giants are opting for a different ownership structure.
Dr. Mohamed Ramady is an energy economist and geo political expert on the GCC and former Professor at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia.