Gulf IPO Surge Continues with Riyad Bank's Riyad Capital Consideration

Riyad Bank considers IPO for its investment unit amid Gulf's IPO surge, as Saudi Arabia eyes Aramco offering to diversify economy.

By Mackenzie Crow

4/4, 10:14 EDT

Key Takeaway

  • Riyad Bank considers IPO for its investment unit, Riyad Capital, amid a Gulf-wide surge in IPOs driven by high oil prices and international interest.
  • Saudi Arabia plans a follow-on Aramco offering to raise at least $10 billion, aligning with MBS's vision for economic diversification.
  • Despite global downturns, the Saudi IPO market thrives with significant listings like MBC Group, showcasing robust investor confidence.

IPO Wave in the Gulf

Riyad Bank, Saudi Arabia's third-largest lender by assets, is exploring the possibility of an initial public offering (IPO) for its investment banking division, Riyad Capital. This move comes amidst a broader trend of companies in the Gulf region capitalizing on the robust demand for IPOs, fueled by high oil prices and growing interest from international investors. The Gulf has witnessed a significant uptick in IPO activity over the past two years, contrasting with a global downturn in share sales due to elevated interest rates. For instance, Saudi Arabia's Modern Mills Co. experienced a 30% surge in its trading debut in Riyadh, following a highly oversubscribed IPO.

Riyad Capital, known for its asset and wealth management, investment banking, and brokerage services, reported a profit of 380.5 million riyals ($101 million) last year, with total assets around 3 billion riyals. The Public Investment Fund (PIF), Saudi Arabia's sovereign wealth fund, is the primary shareholder in Riyad Bank, indicating significant government backing for the potential IPO.

Aramco's Strategic Shifts

In parallel, Saudi Arabia is contemplating a follow-on offering in Aramco, potentially raising at least 40 billion riyals ($10 billion) on the Saudi stock exchange. This initiative is part of Crown Prince Mohammed bin Salman's (MBS) broader strategy to diversify the Saudi economy beyond oil, investing in ambitious projects like the development of Neom, tourism, and sports. The proposed Aramco share sale follows the world's largest ever stock sale four years ago, which raised about $30 billion.

Aramco, the world's leading oil exporter with a market value surpassing $2 trillion, recently announced a halt in plans to increase its oil production capacity. This decision, marking a significant strategy pivot, is expected to free up billions in spending for other ventures. Despite no final decision on the timing of the Aramco sale, the move reflects Saudi Arabia's adaptive strategies in response to global oil demand and investment priorities.

Market Dynamics and Investor Sentiment

The Saudi IPO market showed signs of revival in the latter half of 2023, with successful listings like MBC Group, the largest Gulf broadcaster, whose shares more than doubled since its listing. However, attracting new investors to Aramco's potential offering could pose challenges, given past concerns over the company's valuation and yield. Aramco's efforts to enhance dividends and improve liquidity aim to address these investor reservations.

The Public Investment Fund, under MBS's chairmanship, plays a crucial role in driving the kingdom's economic transformation, with investments spanning various sectors. The fund's aggressive spending strategy underscores the government's commitment to diversifying its economy and reducing reliance on oil revenues.