Saudi companies shelve IPO plans amid geopolitical jitters

Saudi companies are shelving IPO plans due to concerns over market volatility and geopolitical tensions. Firms are worried that volatility and uncertain demand raise the risk of underwhelming subscriptions and marked-down pricing — worries that were further fueled by recent strikes on neighboring countries.

What happened? Mutlaq Al Ghowairi Contracting (MGC) is holding off on its IPO for now, according to a statement. The company was supposed to roll out this year’s first big IPO in the Gulf since the Iran war, aiming to raise up to SAR 3 bn (c.USD 800 mn) through the sale of a 30% stake. The pause means MGC’s CMA approval will expire without listing.

Behind the move: “The [agreement] was pulled due to market conditions,” Riyadh-based investment banker Mustafa Fahim tells EnterpriseAM. “Launching into that environment, when institutional investors are still finding their footing, was always going to be a tough ask.”

Reports are pointing in the same direction: Unnamed sources told Bloomberg that shareholders grew concerned that ongoing geopolitical instability would weigh on post-listing performance, despite institutional orders exceeding the shares on offer, with worries reportedly intensifying after some investors scaled back orders following last week’s strikes in Kuwait and Bahrain.

Not just MGC? Arabian Dyar is also pulling the plug on its planned IPO due to weak market sentiment weighing on investor appetite, Zawya reports, citing a source it says is familiar with the matter. The company was reportedly gunning for a SAR 16 bn valuation, higher than what some banks are pitching.

Why it matters

The delay “creates a wait-and-see dynamic,” Fahim tells us, adding that “when an [agreement] of this size pulls back, other issuers and their advisors take note.” Valuations on IPOs in the pipeline are already being stress-tested, and “there’s greater reluctance to push ahead unless the secondary market gives clear signals,” Fahim says.

Expect spillover effects across Saudi’s IPO pipeline, SICO BSC’s Chiro Ghosh told Bloomberg. MGC’s listing was supposed to serve as a bellwether for investors’ confidence in the infrastructure sector’s resilience amid project reshuffling and geopolitical headwinds. It was also a key test for new Saudi guidance encouraging issuers to allocate up to 30% of shares to retail investors — a move bankers warned could risk an over-allocation, according to the business information service.

The picture isn’t entirely bleak: Newly listed companies are displaying steady performance, signaling that some investors still have a strong appetite for the local market. Shares in IT services firm Dar Albalad for Business Solutions climbed 28.21% on their Tadawul debut and currently trade at around 41% above that price, while mining firm Saleh Abdulaziz Al Rashed & Sons is trading roughly flat at its IPO price of SAR 45 per share. Tadawul has already proven to be a more resilient market than its neighbors, remaining in the green throughout the thick of the war.

What’s next?

“The key variable is the conflict,” Fahim says. “Investment tied to state-backed contracts or large infrastructure programs is generally more resilient. MGC fits the former, which is exactly why this is likely a timing call, not a permanent retreat. [...] Once visibility improves, particularly on oil prices and regional stability, expect issuers to come back, possibly with repriced expectations.”