Prince Al-Waleed bin Talal could probably get a better price for Kingdom Holding from the international markets than on Saudi Arabia’s Tadawul Stock Exchange. The suggested pricing of a near-30% discount to the net asset value of its investments seems conservative when markets around the world are so strong. By listing domestically, Al-Waleed may hope to give the Saudi market an additional international chip, broadening its appeal to investors. But Saudi capital markets would benefit more by simply opening to foreign investors.
The Saudi stock exchange, in which only Saudi residents can invest, has moved to a different beat from international markets. Its index peaked at over 20,000 in February 2006 and has since dropped by 66%, including 12% thus far in 2007, while stock markets generally have been strong. The Saudi economy grew by only 2.4% in 2006, but the recent strength in oil prices has injected further liquidity into it, so the fall seems overdone.
Al-Waleed announced plans to sell 30% of Kingdom in February 2006, when Saudi stocks were close to all-time highs. Al-Waleed now plans to sell only 5%, perhaps reflecting his concern that Saudi stocks are deep in a bear market. Kingdom’s investment track record is good, beating both major international share indices over the last 16 years, and it contains a number of attractive Saudi holdings not readily available to international investors. Thus an international sale should be feasible at a modest discount.
Kingdom will provide a useful additional counter for the Saudi market, in which only Sabic is a well-known international company, as well as increasing its trading volume and liquidity. In the long term, Al-Waleed may hope to become a sort of Warren Buffett of the desert, followed by domestic investors for his wisdom as well as his investment skills.
However, listing Kingdom will do little to reverse the Saudi bear market. If international investors were permitted to participate they might well be interested in Saudi stocks, giving them exposure to that oil-rich economy. Thus opening the Saudi market to them would appear a better way to eliminate the market’s malaise than floating slivers of royal equity.