Saudi Fund’s $1 Billion Deal Boosts Burgeoning Mideast Selldowns

A $1 billion stake sale in Saudi Arabia’s largest mobile phone operator is the latest sign that the market for follow-on equity offerings is picking up in the Middle East.

Author of the article:

Bloomberg News

Laura Gardner Cuesta

Published Nov 14, 2024  •  2 minute read

INDIAN WELLS, CALIFORNIA - MARCH 13: The Public Investment Fund, PIF, presence during the BNP Paribas Open at Indian Wells Tennis Garden on March 13, 2024 in Indian Wells, California. The Public Investment Fund, PIF, is the sovereign wealth fund of Saudi Arabia. The fund has purportedly made a major financial investment offer to combine the ATP and WTA tours in exchange for a top-tier combined event to be staged in the Saudi Kingdom. Photo by Matthew Stockman /Photographer: Matthew Stockman/G

(Bloomberg) — A $1 billion stake sale in Saudi Arabia’s largest mobile phone operator is the latest sign that the market for follow-on equity offerings is picking up in the Middle East.

The Public Investment Fund’s sale of a 2% stake in Saudi Telecom Co. follows secondary share sales in Saudi Aramco and Adnoc Drilling Co. to the tune of roughly $12 billion and $900 million respectively earlier this year. 

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Until recently, a three-year rush of initial public offerings in the Persian Gulf had yet to generate the surge in secondary share sales seen in other markets. But for the region’s sovereign wealth funds focused on raising cash to finance their economic transformation plans, follow-ons broaden their options for state-owned assets beyond the initial listing.

“We have been seeing an increase in discussions around blocks, secondaries and follow-ons,” said Prasad Chari, group head of equity capital markets at Emirates NBD. “This is only natural following the flurry of IPOs in the last couple of years, and where most of the free floats are minority stakes, with room to sell more.”

Secondary share sales help make trading in the stock more liquid, as companies reach the level of free float they need to be included in indexes. They also give investors the chance to top up on stocks they might have missed out on in heavily oversubscribed IPOs.

Adnoc Drilling’s shares are up more than 20% since its offering in May, and Aramco’s shares have recovered from an initial post-deal drop, even if they remain lower year-to-date. Saudi Telecom’s stock fell by around 2% Thursday.

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Equity sales are a key pillar of the PIF’s hunt for cash to fund Saudi’s trillion-dollar Vision 2030 development plan, and more secondary sales could follow. The PIF holds a 16% stake in Aramco valued at about $290 billion. It has stakes worth roughly $200 billion in other local firms, spanning vast swathes of the economy beyond oil, including banking, health care and utilities.

Other regional governments also have ambitious privatization programs that have seen them list minority stakes in top companies.

Since 2022, Dubai has listed its water and electricity utility, a parking business and a toll operator. Abu Dhabi has sold stakes in other Adnoc divisions such as gas and logistics. Oman’s state energy company has also listed its gas networks and exploration and production units.

Ramzi Sidani, head of frontier markets equity strategy at HSBC Global Asset Management in London, believed it would make sense for other listed companies within the Adnoc group or some of the Dubai utilities to do follow-ons.

“We would definitely have appetite for some of these names, and if they come at a good discount we would look at them,” said Sidani. “It would also be good to see other Saudi names coming to the market with frequency.”

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