Investors are expected to pump billions into the Saudi bourse, known as the Tadawul, if the Kingdom is included in the key MCSI-emerging markets index in 2019. The decision is expected on Wednesday.
Analysts interviewed by Arab News gave a unanimous thumbs up to KSA’s widely anticipated inclusion that will see huge US “trackers” run by the likes of BlackRock and Vanguard, sign off on multi-billion dollar cheques on behalf of investors in their pension, insurance and savings funds in North America and elsewhere.
There is about $2 trillion in global emerging (EM) market funds, according to EFG-Hermes in Cairo, a huge pool of capital that could be tapped for future IPOs, with state-owned Saudi Aramco a prime target when it floats in what is expected be the world’s biggest listing of all time.
The macro-story is important, too.
“The positive narrative around reforms being pushed by Crown Prince Mohammed bin Salman makes for a compelling backdrop,” said Charles Robinson, global chief economist at London-based Renaissance Capital.
One of the main advantages of inclusion in the index is that it would herald “a more efficient allocation of capital” in that foreign cash would find its way to those Saudi Arabian-listed companies that offer the best prospects, said Robinson.
Currently, 95 percent of Tadawul investors are made up of smaller retail or private shareholders. But Robinson added: “You would hope that there would be an increasingly professional approach in the Saudi stock market by professional investors who are going to influence the price/earnings ratios of the better companies, pushing up their share prices, allowing them to raise more capital and therefore enabling them to become bigger companies in the future.”
Those doing less well, which currently might be attractive to retail investors, could end up getting less cash, he suggested.
The inclusion of Saudi Arabia in the MSCI EM index may help to “turbocharge” the Vision 2030 plan that aims to reduce the Kingdom’s reliance on oil, and boost the private sector, he added.
In turn, this would pave the way for greater employment of Saudi nationals, especially young people who make up a large proportion of the potential and actual workforce.
Hootan Yazhari, head of Middle East and global frontier markets research at Bank of America Merrill Lynch, told Arab News: “Global Emerging Market fund managers will effectively be forced to have a view on Saudi Arabia, especially as it will be a material part of the MSCI index (more than 2.6 percent weighting). Therefore, Saudi Arabia’s profile and awareness among fund managers globally will increase,” he said.
Others were equally enthusiastic. Mohammed Al-Hajj, Middle East equities strategist at EFG-Hermes, told Arab News that an upgrade to emerging market status meant that from 2019 Saudi Arabia would be part of global emerging market (GEM) benchmarks followed by GEM investors which he expected would lead to inflows of $30 billion-$45 billion into the Kingdom by the end of 2019 (excluding Aramco).
He said: “Ownership of Saudi businesses by foreign financial institutions is only 1.8 percent of total (Tadawul) market value versus an emerging market (EM) average of 17 percent, as such we see big potential for inflows into the country,” said Al-Hajj.
Importantly, analysts said MSCI inclusion would make the Kingdom a more sophisticated market as seasoned investors exerted greater influence on its corporates. KSA companies would be increasingly compared to international peers by investors, it was suggested, making management teams more likely to focus on improving strategy, efficiency and overall performance as they seek to compete for capital. “Accountability to shareholders will increase,” said Al-Hajj.
EFG-Hermes has highlighted the appeal of KSA-listed banks and petrochemical companies, tipping Samba, Kayan, SABB, SABIC and Al-Rajhi.
Hajj saw scope for about $10 billion of inflows to the market from passive MSCI EM index trackers and a similar amount from active managers. “With FTSE having elected to include the country in its EM benchmark in 2019, this necessitates another $6 billion of passive flows taking potential total inflows close to $30 billion.
“We see these flows providing tail winds to the market and supporting the country’s FX position,” he said.
Foreign ownership limits in KSA have been capped at 49 percent, and a few companies are fully closed to foreign investors, but the Tadawul embarked on a modernization and reform program in 2015 to make the market more transparent and accountable.
Historically, Saudi Arabian shares have traded at a premium to the average for emerging markets, but with excitement building ahead of MSCI’s decision this week, there are some concerns that stock values have become a bit too toppy.
Bloomberg said in a report that the buying had pushed the capitalization of Riyadh’s market beyond that of South Africa in dollar terms for the first time in 11 months.
“As the gains pile up, Saudi stocks have become increasingly more expensive than the group the country is poised to join,” claimed the report.
As markets anticipated an MSCI upgrade, “valuations have gone so much ahead of fundamentals,’’ Aarthi Chandrasekaran, vice president at Shuaa Capital, said in an interview with Bloomberg TV.
“I’m sure there will be a cool-off period post the decision announcement, when valuations will start catching up more with reality on the ground.’’
Another analyst cited by Bloomberg advised investors to be more selective and go for ‘bottom-up’ names.
There are, of course, disadvantages to being included in the index. In the good times, capital flows would pour in, but in less benign periods, outflows were possible, depressing market values, damaging sentiment and knocking balance sheets.
Timothy Ash at Blue Bay Asset Management in London told Arab News: “It’s a story about managing success: Portfolio managers, for a variety of reasons, could decide they don’t like the KSA story any more and they can leave … look at Argentina.”
Al-Hajj said: “What we have seen in previous upgrades is that multiples expand, making markets expensive on a fundamentals basis, which could make it prone to weakness (short-term) in the post-implementation period (after May 2019).
“In addition, once a market is part of EM indices it will be more prone to EM outflows and risk-off periods that lead to EM weakness.”
He also said: “However, the benefits far outweigh the negatives in our view. As the inclusion will increase the institutional share in the Saudi market, and offer companies access to funds during capital raising by Saudi companies (new listings) in the future.”
The MSCI proposal, which was laid out in a document published in February, is to implement the potential reclassification in two steps in May and August 2019.
Saudi shares-index upgrade likely to ‘turbocharge’ private sector growth
Saudi shares-index upgrade likely to ‘turbocharge’ private sector growth
- $2 trillion in global emerging market funds
- Saudi bluechips set to gain from inflows
SABIC, Almarai, SEC able to absorb fuel price hike: S&P Global
RIYADH: Major Saudi companies, including chemical company SABIC, dairy firm Almarai, and Saudi Electric Co., are well-positioned to handle the impact of higher fuel and feedstock prices introduced on Jan. 1, according to a new report.
Released by capital market economy firm S&P Global, the analysis reveals that those corporates will be able to absorb the marginal increase in production costs by further improving operational efficiencies as well as potentially via pass-through mechanisms.
This came after Saudi Aramco increased diesel prices in the Kingdom to SR1.66 ($0.44) per liter, effective Jan. 1, marking a 44.3 percent rise compared to the start of 2024. The company has kept gasoline prices unchanged, with Gasoline 91 priced at SR2.18 per liter and Gasoline 93 at SR2.33 per liter.
Despite the hike, diesel prices in Saudi Arabia remain lower than those in many neighboring Arab countries. In the UAE and Qatar, a liter of diesel is priced at $0.73 and $0.56, respectively, while in Bahrain and Kuwait, it costs $0.42 and $0.39 per liter.
“For SABIC and Almarai, the increase in feedstock prices will not affect profitability significantly. In the case of utility company, SEC, additional support will likely come from the government if needed,” the report said.
The capital market economy firm projects that SABIC will continue to outperform global peers on profitability.
“We don’t expect the rise in feedstock and fuel prices to materially affect profitability, since the company estimates it will increase its cost of sales by only 0.2 percent,” the report said.
It further highlighted that SABIC is considered a government-related entity with a high possibility of receiving support when needed.
The report also underlines that Almarai anticipates an additional SR200 million in costs for 2025, driven by higher fuel prices and the indirect effects of increased expenses across other areas of its supply chain.
“We believe Almarai will continue focusing on business efficiency, cost optimization, and other initiatives to mitigate these impacts,” the release stressed.
With regards to SEC, S&P said that an unrestricted and uncapped balancing account provides a mechanism for government support, including related to the higher fuel costs.
“We believe any increased fuel cost will be covered by this balancing account,” the report said.
The study further highlights that the marginal increase “could significantly affect wider Saudi corporations’ profit margins and competitiveness.”
The S&P data also suggests that additional costs will be reflected in companies’ financials from the first quarter of 2025.
“Saudi Arabia is continuing its significant and rapid transformation under the country’s Vision 2030 program. We expect an acceleration of investments to diversify the Saudi economy away from its reliance on the upstream hydrocarbon sector,” the report said.
“The sheer scale of projects — estimated at more than $1 trillion in total — suggests large funding requirements. Higher feedstock and fuel prices would help reduce subsidy costs for the government, with those savings potentially redeployed to Vision 2030 projects,” it added.
Lenovo to produce ‘Saudi Made’ PCs by 2026 following $2bn Alat deal closure
RIYADH: Chinese tech giant Lenovo is set to manufacture millions of computer devices in Saudi Arabia by 2026, following the completion of a $2 billion investment deal with Alat, a subsidiary of the Public Investment Fund.
First announced in May, the partnership has now received shareholder and regulatory approvals, paving the way for Lenovo to establish a regional headquarters and a manufacturing facility in the Kingdom.
The deal marks a significant step in aligning Lenovo’s growth ambitions with Saudi Arabia’s Vision 2030 goals of economic diversification, innovation, and job creation, the company said in a press release.
The factory will manufacture millions of PCs and servers every year using local research and development teams for fully end-to-end “Saudi Made” products and is expected to begin production by 2026, it added.
“Through this powerful strategic collaboration and investment, Lenovo will have significant resources and financial flexibility to further accelerate our transformation and grow our business by capitalizing on the incredible growth momentum in KSA and the wider MEA region,” Yang said.
He added: “We are excited to have Alat as our long-term strategic partner and are confident that our world-class supply chain, technology, and manufacturing capabilities will benefit KSA as it drives its Vision 2030 goals of economic diversification, industrial development, innovation, and job creation.”
Amit Midha, CEO of Alat, underscored the significance of the partnership for both Lenovo and the Kingdom.
“We are incredibly proud to become a strategic investor in Lenovo and partner with them on their continued journey as a leading global technology company,” said Midha.
“With the establishment of a regional headquarters in Riyadh and a world-class manufacturing hub, powered by clean energy, in the Kingdom of Saudi Arabia, we expect the Lenovo team to further their potential across the MEA region,” he added.
The partnership is expected to generate thousands of jobs, strengthen the region’s technological infrastructure, and attract further investment into the Middle East and Africa, according to the press release.
In May, Lenovo raised $1.15 billion through the issuance of warrants to support its future growth plans. The initiative, which was fully subscribed by investors, signals confidence in Lenovo’s strategic approach and its plans for global expansion.
The investment deal was advised by Citi and Cleary Gottlieb Steen & Hamilton for Lenovo, while Morgan Stanley and Latham & Watkins represented Alat.
Lebanon’s bonds climb as parliament elects first president since 2022
LONDON: Lebanon’s government bonds extended a three-month long rally on Thursday as its parliament voted in a new head of state for the crisis-ravaged country for the first time since 2022.
Lebanese lawmakers elected army chief Joseph Aoun as president. It came after the failure of 12 previous attempts to pick a president and the move boosts hopes that Lebanon might finally be able to start addressing its dire economic woes.
Lebanon’s battered bonds have almost trebled in value since September when the regional conflict with Israel weakened Lebanese armed group Hezbollah, long viewed as an obstacle to overcoming the country’s political paralysis.
Most of Lebanon’s international bonds, which have been in default since 2020, rallied after Aoun’s victory was announced to stand between 0.8 and 0.9 cents higher on the day and at nearly 16 cents on the dollar.
They have also risen almost every day since late December, although they remain some of the lowest priced government bonds in the world, reflecting the scale of Lebanon’s difficulties.
With its economy still reeling from a devastating financial collapse in 2019, Lebanon is in dire need of international support to rebuild from the war, which the World Bank estimates to have cost the country $8.5 billion.
Closing Bell: Saudi main index closes in green at 12,097
RIYADH: Saudi Arabia’s Tadawul All Share Index rose on Thursday, gaining 9.01 points, or 0.07 percent, to close at 12,097.75.
The total trading turnover of the benchmark index was SR7.48 billion ($1.99 billion), as 96 stocks advanced, while 133 retreated.
The MSCI Tadawul Index decreased by 3.28 points, or 0.22 percent, to close at 1,510.14.
The Kingdom’s parallel market, Nomu, surged, gaining 251.24 points, or 0.82 percent, to close at 31,027.39. This comes as 56 of the listed stocks advanced, while 32 declined.
The best-performing stock was Nice One Beauty Digital Marketing Co. for the second day in a row, with its share price increasing by 7.69 percent to SR49.
Other top performers included Fawaz Abdulaziz Alhokair Co., which saw its share price rise by 6.5 percent to SR14.74, and Abdullah Saad Mohammed Abo Moati for Bookstores Co., which saw a 4.42 percent increase to SR35.45.
Arabian Pipes Co. and Dr. Sulaiman Al Habib Medical Services Group also saw positive change with their share prices moving up by 4.10 percent and 3.89 percent to SR12.70 and SR298.80, respectively.
The worst performer of the day was Salama Cooperative Insurance Co., whose share price fell by 5.88 percent to SR19.52.
Almoosa Health Co. and Al Hassan Ghazi Ibrahim Shaker Co. also saw declines, with their shares dropping by 5.13 percent and 3.91 percent to SR133.20 and SR28.25, respectively.
On the announcements front, Riyad Bank declared its intention to fully redeem its $1.5 billion fixed-rate reset tier 2 sukuk, issued in February 2020, on Feb. 25, 2025.
According to a Tadawul statement, the sukuk originally maturing in 2030, will be redeemed at face value in accordance with the terms and conditions. The redemption, approved by the regulators, will include any accrued but unpaid periodic distributions.
On the redemption date, Riyad Sukuk Limited will deposit the full amount into the accounts of sukuk holders, marking the completion of the issuance. This redemption will conclude the sukuk’s life, with no remaining value post-redemption.
Riyad Bank ended today’s trading session edging up by 0.91 percent to SR27.85.
Rotana eyes growth in smaller Saudi cities amid hospitality expansion
RIYADH: Rotana Hotels is turning its attention to smaller cities in Saudi Arabia as part of its ambitious growth strategy to strengthen its presence in the Kingdom.
Speaking on the sidelines of the third Saudi Tourism Forum, the firm’s Chief Operating Officer Eddy Tannous told Arab News the company is engaging with tourism authorities, development funds, and private investors to explore opportunities in emerging destinations such as Al-Baha and Asir.
Rotana has previously announced its plans to develop nine new properties in Saudi Arabia, five of which are scheduled to open in 2025. This follows the launch of three hotels in 2024, including Nova M, the first Edge by Rotana property, as well as Dar Rayhaan by Rotana in Alkhobar and Al Manakha Rotana in Madinah.
Tannous said: “We have development on properties that will probably open in the next, I want to say, two to five years. Probably six to eight properties in those tertiary cities where it’s becoming a destination that people want to go to as well.”
With Saudi Arabia ranking third globally for international tourist arrival growth in 2024, with a 25 percent increase compared to the previous year, the Kingdom’s hospitality sector is seeing rapid growth.
The company’s goal is to triple its current key count in the Kingdom to 6,000 within the next three years, bolstered by strong demand for hospitality services.
Rotana’s upcoming developments, including Yasmina Rayhaan by Rotana in Riyadh, aim to meet this increasing demand.
“We are a regional brand. We are a brand that grew up in this region, so Saudi Arabia has always been a focus for us. But I think with the announcement of Vision 2030, it became more of a catalyst for us to continue focusing on Saudi Arabia,” Tannous said.
He added: “Saudi Arabia is the region or is the country in this Middle East region that’s growing the fastest and that’s growing with the biggest magnitude from a hospitality standpoint. Our main focus in Saudi Arabia is to focus both on the government sector projects and individual investors.”
Rotana’s expansion strategy is also geared toward major international events, including Saudi Arabia’s hosting of the FIFA World Cup in 2034. This event is expected to attract millions of visitors, creating significant opportunities for the hospitality sector.
Commenting on the company’s plans, Rotana CEO Philip Barnes said in a press release: “We see tremendous potential for expansion in Saudi Arabia. Our ambitious pipeline for KSA underscores our commitment to the hospitality and tourism sectors, both in the Kingdom and regionally, as demand for business and leisure travel soars to new heights in anticipation of major events such as the FIFA World Cup 2034.”
Beyond Saudi Arabia, Rotana is expanding across the Middle East, Africa, Eastern Europe, and Turkiye, where it currently operates 81 properties. The company has a pipeline of 36 new properties in 22 cities, including its projects in Saudi Arabia.
Rotana is also strengthening its presence in key markets such as the UAE, Turkiye, and Africa, where demand for leisure and business travel is on the rise.
“As a company today, we run 86 properties in the world. Some of our source markets to Dubai and Abu Dhabi, which are two of our biggest markets, include the UK, Germany, and Russia,” Tannous said.
Rotana is also preparing for significant updates to its loyalty program, which are expected to be announced later this year — although details remain under wraps.
“It’s not something I can talk about today, but we will hopefully in 2025,” Tannous said. “The most exciting thing for me right now is what we’re doing on our loyalty program because that will open the door for bank partnerships, credit card partnerships, airline partnerships.”
Rotana’s expansion in Saudi Arabia and beyond reflects its commitment to meeting the growing demand for hospitality services while positioning itself as a leader in both regional and international markets.
