Saudi Arabia is delaying the initial public offering of its stock exchange on hopes that a potential MSCI 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.
The exchange is hoping that waiting until after a possible classification as an emerging market in June could improve trading volumes and help it achieve a better valuation for its owner, the Public Investment Fund.
The stock exchange hired HSBC Holdings’ local unit in 2016 to advise on the IPO.
The potential offering is part of the kingdom’s privatization drive to wean its economy off oil. It also includes plans to sell shares in oil giant Saudi Aramco, local soccer clubs and grain silos.
The Tadawul “recognises the importance of confidence-building 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 after considering all relevant factors, he said. HSBC and the PIF declined to comment.
MSCI, FTSE upgrade
Expectations that the Tadawul would earn the status upgrade from both MSCI and FTSE Russell have helped boost its main stock gauge by over 15 percent this year, compared with a drop of 0.1 percent for the MSCI EM Index.
The bourse, which was granted classification as a secondary emerging market by FTSE in March, could attract $41 billion of foreign capital if MSCI 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.
The 200-day moving average for the total value of Saudi shares traded is currently about 33 percent lower than it was two years ago. Foreign investors have been net buyers of shares in Riyadh for sixteen straight weeks this year, but still only own hold about five percent of total shares.
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