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Thu 24 Mar 2016 10:03 AM

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Saudi $400bn bourse asks banks to pitch for IPO advisory roles

Tadawul made a net profit in 2014 of $71m on revenue of $130m, according to its latest available accounts

Saudi $400bn bourse asks banks to pitch for IPO advisory roles
A Saudi investor monitors the stock exchange at the Saudi Stock Exchange, or Tadawul, in the capital Riyadh. (FAYEZ NURELDINE/AFP/Getty Images)

The Saudi Stock Exchange has asked banks to pitch for roles advising on its own initial public share offer, sources familiar with the matter have said.

Saudi Arabia is expected to privatise and float a number of state-owned assets in the coming years as it seeks to raise cash to help bridge the budget shortfall caused by lower oil prices, as well as to improve the efficiency of the economy by reforming state companies and bringing in professional investors.

The stock exchange, Tadawul, said in December that it planned to list its shares in 2018, but there has also been talk of privatisations, including IPOs, involving national oil firm Saudi Aramco, as well as the kingdom's ports, flour mills and utilities.

An invitation was sent out by Tadawul to local and international banks at the start of March asking them to submit bids to advise on the IPO, with responses due at the end of the month, two of the sources said.

No one was immediately available for comment at Tadawul, by far the largest exchange in the Middle East with a total market capitalisation of 1.48 trillion riyals ($395 billion), according to Thomson Reuters data.

Traditionally Saudi companies will choose one or two banks as IPO advisors. For example, the 22 billion-riyal listing of National Commercial Bank in late-2014 was managed by HSBC's Saudi Arabian arm and the investment banking arm of Gulf International Bank.

No size of stake to be sold or valuation was given in the invite, according to the sources, although one, a Gulf-based banker, said the valuation would be contingent on trading volumes.

On Wednesday, the Tadawul traded 279.2 million shares worth 4.75 billion riyals. In comparison the Dubai Financial Market , currently the region's only listed exchange, recorded 228.7 million shares changing hands worth 340.8 million dirhams ($92.8 million).

Tadawul's trading volumes, its main source of revenue, are expected to increase in the coming years following the opening up of the bourse to foreign investors last June.

The Saudi market's inclusion in international share indexes such as the MSCI series, which would bring significant international capital flows should it achieve emerging markets status, could be announced as early as 2017 and would give a huge boost to trading volumes, the Gulf-based banker added.

Tadawul made a net profit in 2014 of 265 million riyals on revenue of 487 million riyals, according to its latest available accounts.