Saudis to delay exchange IPO on MSCI hopes

Tadawul pushes back plans to sell shares as it awaits potential upgrade that could boost its value

Saudi Arabia is delaying the initial public offering (IPO) of its stock exchange on hopes that a potential MSCI Inc upgrade could boost its value, according to people with knowledge of the matter.

The Tadawul, as the Middle East’s biggest stock exchange is known, has pushed back plans to sell shares to 2019 at the earliest, from this year, said the people, asking not to be identified because the information is private.

Waiting until after a possible classification as an emerging market in June could improve trading volumes and help the bourse achieve a better valuation for its owner, the Public Investment Fund, they said.

The exchange’s main stock gauge, the Tadawul All Share Index, is among the world’s top 10 best performers this year after FTSE Russell classified the country as a secondary emerging market in March.

That helped boost the gauge’s 12-month price-to-earnings ratio to the highest since 2015, the most expensive compared to emerging-market stocks in almost three years.

The Tadawul “recognises the importance of confidencebuilding and fair valuation in reflecting its capacity, infrastructure and liquidity,” a spokesman said in an emailed statement.

As the bourse moves forward with IPO planning and consultations with key stakeholders, the Tadawul will determine the best timing for a sale, he said. HSBC and the PIF declined to comment.

It “makes sense for them to wait,” said Joice Mathew, the head of equity research at United Securities in Muscat. “With MSCI inclusion coming, entering emerging markets will bring a lot of attention from international institutional investors.”

MSCI upgrade

The bourse could attract $41 billion of foreign capital if MSCI Inc follows FTSE with an upgrade this year, according to Al Rajhi Capital. FTSE will implement the classification from next year, and MSCI is expected to do the same. Foreign investors have been net buyers of shares in Riyadh for 16 straight weeks this year, but still only hold about 5 per cent of total shares.