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The changing landscape
Saudi Arabia’s capital markets
Q2 2017
Table of contents01 The macroeconomic perspective 03
02 Regulatory developments in the capital markets 09
03 M&A activity 17
04 Capital markets performance snapshot 22
06 IPO trend analysis — Tadawul main market 31
08 REITs market 50
10 Mutual funds and ETFs 63
11 Abbreviations and glossary 72
09 Nomu market 55
07 Sukuk market 45
05 Equity market trends — Tadawul main market 25
Section
The macroeconomic perspective
01
Page 4 The changing landscape: Saudi Arabia’s capital markets
Capital market performance is directly correlated with oil prices, as reflected in the Tadawul All Share Index (TASI) growth during the period 2012–1H17
Brent crude oil spot price growth, nominal gross domestic product
(GDP), oil GDP and non-oil GDP growth (2012–16)
TASI growth, domestic demand and industrial growth (2012–16)
Economic growth slowed in the first half of 2017, weighed down by the cumulative impact of
Government spending cuts and lower oil prices.
Declining economic growth has adversely affected the capital market since 2014, with the TASI
posting a negative growth of –17.1% in 2015. With economic measures, the TASI has seemed
to stabilize in the last two periods.
2012 2013 2014 2015 2016 1H17
Brent crude oil spot
price growth
9.6% 1.5% 1.3% –13.8% –1.9% –14.0%
2012 2013 2014 2015 2016 1H17
TASI growth 6.0% 25.5% –2.4% –17.1% 4.3% 3.0%
552 589
657 687 639
4.3%
5.2%
6.3%
4.5%
(1.0%) (2.0%)
0.0%
2.0%
4.0%
6.0%
8.0%
0
200
400
600
800
2012 2013 2014 2015 2016
Industria
l gro
wth
(perc
enta
ge)
Dom
estic d
em
an
d (
US
$b)
Domestic demand Industrial growth
736 747
756
652 640
7.8%
–6.3% –7.3%
–46.0%
–9.9%
11.3%9.3% 8.6% 9.4%
1.3%
–50.0%
–40.0%
–30.0%
–20.0%
–10.0%
0.0%
10.0%
20.0%
560
600
640
680
720
760
800
2012 2013 2014 2015 2016
Oil G
DP
and n
on
-oil G
DP
gro
wth
Nom
inal
GD
P (
US
$b)
Nominal GDP Oil GDP growth Non-oil GDP growth
Source: Oxford Economics, S&P Capital IQ, EY analysis
Page 5 The changing landscape: Saudi Arabia’s capital markets
Falling investments and a rise in the interest rate are expected to tighten liquidity and put pressure on the capital market in the near future
Investment growth (2012–16) Saudi Arabian Monetary Authority (SAMA) bills and Saudi Arabia
Interbank Offered Rate (SAIBOR)
Saudi Arabia enjoyed a steady growth in investments, with a compound annual growth rate
(CAGR) of 6% from 2012–15. Persistent low oil prices and the current economic outlook led to a
—17.3% fall in investments through 2016 year-on-year (y-o-y).
In 2016, lending rates increased to 2.3% from 1.09% in 2015 owing to a rise in Federal Reserve
interest rates. Rising interest rates have led to a fall in money supply (decreased by 0.2% in
2016 to US$305b), thereby adversely impacting the capital market outlook. So far, 2017 has
shown a stable outlook.
2012 2013 2014 2015 2016
Investment growth 8.1% 7.7% 7.8% 2.4% –17.3%
164 177
190 195
161
12
9
8 87
0
3
6
9
12
15
0
50
100
150
200
250
2012 2013 2014 2015 2016
Inw
ard
fore
ign d
irect in
vestm
en
t (US
$b)
Inve
stm
ent
(US
$b)
Investment FDI (Inward)
1.15%
1.74%
1.39%
0.60%
1.00%
1.40%
1.80%
Jul 16
Au
g 1
6
Se
p 1
6
Oct 1
6
No
v 1
6
De
c 1
6
Jan
17
Fe
b 1
7
Mar
17
Ap
r 1
7
May 1
7
Jun
17
SA
MA
bill
s (
52 w
eek
perc
enta
ge)
1.11% 1.09% 1.07% 1.09%
2.30%
1.75%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
201
2
201
3
201
4
201
5
201
6
1H
17
SA
IBO
R
Source: Oxford Economics, SAMA, EY analysis
Page 6 The changing landscape: Saudi Arabia’s capital markets
The economic impact of low oil prices triggered Government measures to control the economic slowdown and stabilize the capital market
108.9
47.1
0.0
40.0
80.0
120.0
Fe
b 1
4
Ap
r 1
4
Jun
14
Au
g 1
4
Oct 1
4
De
c 1
4
Fe
b 1
5
Ap
r 1
5
Jun
15
Au
g 1
5
Oct 1
5
De
c 1
5
Fe
b 1
6
Ap
r 1
6
Jun
16
Au
g 1
6
Oct 1
6
De
c 1
6
Fe
b 1
7
Ap
r 1
7
Jun
17
Brent crude oil spot price (US$ per barrel)
2014 2015 2016 1H17
Reserves, foreign exchange, US$b 719 603 526 500
The Government funded the deficit by drawing on its reserves and
central bank deposits.
► Of the Saudi Arabian Government’s revenues, 86% is derived from oil. Therefore, low oil prices led to a decline in government expenditure and the gross fixed capital
formation (GFCF), and consequently had a strong impact on the capital market.
► In order to combat the impact of declining GFCF, the Saudi Arabian Government resorted to using the large foreign reserves of SAR2.6t (US$603b) held by the SAMA,
which provided the required financial cushion for the Government to prevent further decline in the markets, and push economic growth. Furthermore, there was plenty of
room for the Government to raise debt, given its strong credit ratings and record low debt levels, which caused the markets to stabilize from January 2016 onward. In
2016, The Government also cut domestic funding for infrastructure and perks to civil servants, consequently the fiscal deficit of Saudi Arabia came down from US$98b to
US$79b in 2016, with positive signs of economic recovery.
Summary
Since around 86% of Government revenues are derived from oil revenues, a
prolonged period of lower prices impacted Government expenditure, creating a
deficit of US$98b in 2015.
9,106.66,863.6
0.0
4,000.0
8,000.0
12,000.0
Fe
b 1
4
Ap
r 1
4
Jun
14
Au
g 1
4
Oct 1
4
De
c 1
4
Fe
b 1
5
Ap
r 1
5
Jun
15
Au
g 1
5
Oct 1
5
De
c 1
5
Fe
b 1
6
Ap
r 1
6
Jun
16
Au
g 1
6
Oct 1
6
De
c 1
6
Fe
b 1
7
Ap
r 1
7
Jun
17
TASI index value
Source: SAMA, EIA, news articles, Trading economics, EY analysis
Page 7 The changing landscape: Saudi Arabia’s capital markets
Privatization of major sectors, focus on small- and medium-sized enterprises (SMEs) and encouraging foreign investment are few significant measures as part of the Government’s Vision 2030 agenda to reduce Saudi Arabia’s dependence on oil
Saudi
Aramco
Vision
2030
Privatization
SMEs to gain more leverage in line with
Vision 2030
► Vision 2030 has a clear focus on the private
sector to develop and diversify the
economy.
► The Government has formed a public
authority for SMEs to regulate the sector,
facilitate funding and create jobs.
► SME contribution to GDP is expected to
increase by four times.
Listing of Tadawul likely
to improve Saudi Arabia’s finances
► Tadawul announced plans to go public in 2018.
► It is the largest stock market in the Middle East
region, with a market cap of US$306b.
► The Capital Market Authority (CMA) estimates listed
companies to increase from 175 to 250 by 2020.
Saudi Aramco proposed stake sale to
provide relief against falling oil revenues
► Saudi Arabia announced desire to IPO Saudi
Aramco.
Budget (2017) to impose taxes; industrial
energy and mining sectors to gain
importance
► The 2017 budget deficit is expected to be 33%
lower than that in 2016. The deficit is expected to
be reduce by debt and drawing from reserves.
► Other key budget features include:
► Introduction of a minimum expatriate fee
► Imposition of selective taxes on tobacco, soft
drinks and energy drinks
Saudi Arabia’s US$17.5b bond sale
expected to stabilize state finances
► Saudi Arabia issued the largest emerging
market bond sale of US$17.5b in October
2016.
► The huge demand for Saudi debt was
partly due to low global interest rates and
funds’ frustration with a lack of high-
yielding assets globally.
► This reassures investors that the country
could diversify its revenues and stabilize
state finances.
Saudi Arabia to launch privatization
drive as part of wider economic reforms
► There are plans to privatize major sectors such as health care, energy, airports, education and
renewable energy.
► Health care remains the top priority for privatization, with private sector health contribution to rise to
35% by 2020 from 25% in 2015, taking the number of licensed medical facilities from 40 to 100.Source: Public sources, news articles
Page 8 The changing landscape: Saudi Arabia’s capital markets
Global events that impacted the Saudi capital markets
Source: Public sources, news articles
Rise in US
interest ratesBetter trade
ties
post-Brexit
Lifting of Iran
sanctions/
Qatar
embargo
Saudi-
Russia
extends
production
cuts
► The US Federal Reserve raised interest
rates to 1% to 1.25% range in June 2017.
A further increase in 2017 is predicted.
► The rise in US interest rates would result in
capital outflow, as investors from emerging
economies seek higher returns in the largest
economy in the world.
► In order to keep the currency pegged at the
fixed rate, Saudi Arabia has to sell dollars.
However, Saudi Arabia’s dollar income and
dollar reserves has dropped significantly.
► Saudi Arabia made post-Brexit Britain its
“preferred partner” to help reshape its
economy after Theresa May’s visit to
Saudi Arabia in April 2017.
► Saudi Arabia is Britain’s largest trade partner
in the Middle East region, with an annual
trade worth US$8.2b a year. The fall in
sterling value post-Brexit led to cheaper
imports from the UK.
► Post-Brexit, trade relations and ties are
expected to strengthen as Britain and GCC
are working on a Free Trade Agreement that
could be signed with the UK.
► The Saudi-Russia consortium has agreed to
extend a deal to cut oil production through
March 2018, which was supposed to expire
in June 2017.
► The two countries have agreed to do their
best to achieve the desired goal of
stabilizing the market and reducing
commercial oil inventories to their five-year
average level.
► Saudi Arabia and Russia produce a
combined 20 million barrels of crude oil a
day — about one-fifth of global consumption.
► During Trump’s visit in May 2017, US
and Saudi Arabian companies signed
business deals worth tens of billions of
dollars.
► PIF and US private equity firm
Blackstone agreed to create a US$40b
infrastructure investment fund.
► Saudi Aramco signed 16 accords with 11
US companies valued at about US$50b.
► Lifting of Iran sanctions, which
would lead to an increase in
oil supply, is likely to lower oil
prices further. Although Saudi
Arabia was refusing
production cuts initially, they
have recently reduced
exports, which has slightly
pushed up oil prices.
► Saudi Arabia, the UAE, Bahrain and Egypt
has cut off ties with Qatar as the countries
allegedly accused Qatar of funding
terrorism.
► However, Qatar is finding ways to work
around the situation by trade tie ups with
other countries and increasing local
production.
US and Saudi
firms sign high-
value deals
Section
Regulatory developments in the capital markets
02
Page 10 The changing landscape: Saudi Arabia’s capital markets
Tadawul aims to improve access to capital, relax regulations, and improve governance and transparency standards
► Alternative equity market
launched in February 2017,
with lighter listing
requirements compared with
the main market
► Minimum capital requirement
of SAR10m compared with
SAR100m in the main market
► Encourages SMEs and family
businesses to go public
► Nine companies currently
trading on the exchange
► Since inception the Saudi
Nomu market index declined
by 35% by the end of Q2
2017, highlighting volatility
driven by the nature and age
of the segment.
► An independent sector for
REITs on its current equity
market, where investors may
trade units of the fund via the
same mechanism used for
equities.
► There are four REITs
currently listed in
Tadawul: Riyad REIT fund,
which got listed in November
2016, was the first and
Taleem REIT Fund was the
latest, which got listed in
May 2017
► Qualified foreign investors
(QFIs) allowed to own direct
stake of slightly less than
10%, an increase from 5%
► Combined, all foreign
investors limited to owning
49% of any single institution
► To qualify as QFI, investor to
have a minimum of US$1b
assets under management
(AUMs) globally (instead of
US$5b)
► Retail and wholesale
businesses allowed 100%
foreign ownership
► Zakat or tax profile of listed
entities will be based on
actual ownership between
GCC and non-GCC persons
as at the date of fiscal year-
end, which will now include
the weight of listed shares.
► Previously, the percentage of
only original (founding)
shareholders’ ownership was
taken into account
► New regulations provide
shareholders and board
members with improved
rights, greater clarity and
more transparency as to their
respective roles and
responsibilities
► Published in mid-February
this year, they formally come
into effect on 22 April 2017
► The draft regulations on M&A
includes regulating mergers
through the general
assembly, offering proposals,
mandatory and permissive
offers and disclosure
requirements, as well as
demonstrating the timetables
of these transactions. It also
includes provisions on
Reverse Takeover and
Demergers.
Parallel market “Nomu” lists 9
companies
Tadawul lists real estate
investment trust (REIT) funds
Exchange allows foreign
investment
Listed shares considered for
tax profile
CMA approves new corporate
governance regulations for
joint stock companies (JSCs),
also announces plans for
updating M&A regulations
► Move to T+2 settlement cycle
from T+0 is expected to
increase liquidity in the
market
► Introduction of new tradable
rights to improve products
and services, and diversify
investment channels
► Introduction of securities
lending and covered short
selling by the CMA. Short
selling allows investors to
make gains in a declining
market
► The independent custody
model, along with the T+2
settlement cycle, expected to
provide custodians with the
ability to match client
instructions against the
broker and only settle the
ones that clients have
instructed.
CMA makes amendments
to strengthen capital market
and be in line with global
standards
Source: Public sources, news articles
Page 11 The changing landscape: Saudi Arabia’s capital markets
The publication of the new corporate governance regulations is driven by the continued effort to attract additional foreign investment into Saudi Arabia and bring in standards in line with other leading global exchanges
Source: Public sources, news articles
01
04
0203
05
06
0708
Key objectives of the new corporate governance regulations include
1. Enhancing shareholder rights
2. Clarifying board, committee and executive management roles and responsibilities, including their decision-
making mechanisms
3. Achieving greater openness, competitiveness, transparency and disclosure
4. Avoiding and disclosing conflicts of interest
5. Improving accountability and control over employees
6. Protecting shareholder rights
7. Overseeing corporate actions
8. Raising the professional standards of listed JSCs
Page 12 The changing landscape: Saudi Arabia’s capital markets
Move from T+0 to T+2 settlement cycle is in line with rules adopted by some of the regional regulators and global best practice
Introduction
to the change
from T+0 to T+2
settlement cycle
in Tadawul
T+0 settlement cycle: same day as transaction
► The transaction date and settlement date (the
date on which a purchaser pays the seller for
securities) occur on the same day.
What was the need for the shift to T+2?
► The principal drawback was that it required
purchasers to fund fully any trade they intend to
carry out on the transaction date, which
reduces market liquidity.
► QFIs faced the issue on funding commitments,
especially where such trades take place on a
Sunday, which is a business day in Saudi
Arabia, but not in many Western jurisdictions
where QFIs are likely to be based.
T+2 settlement cycle: two days after the
transaction date
► Settlement will take place two days after the
transaction date; however, this should have no
impact to traders on Tadawul.
► Buyers can sell securities directly upon
executing transactions, with no need to wait for
completing the settlement of securities.
► Sellers gain purchasing power, which enables
them to buy new securities directly upon
executing transactions without having to wait for
completing the settlement of securities.
► The new settlement cycle will apply to
transactions of securities of all types listed in
the market ― stocks, sukuk, bonds, exchange
traded funds (ETFs) and tradable rights, in
addition to over-the-counter (OTC) transactions.
Source: Tadawul, news articles
Page 13 The changing landscape: Saudi Arabia’s capital markets
T+2 settlement cycle is expected to increase liquidity and asset safety in the Saudi Arabian capital markets
Best practice
1
2
3
4
5
Advantages
(T+2 settlement)
Aligning the Saudi stock
market with leading global
settlement practices, which
will open up new listing
opportunities for the Saudi
market among other global
market indices
Asset safety
Increasing levels of asset
safety for investors, and
providing enough time to
verify transactions and deal
with errors, should they
occur
Short selling
Allowing short selling on
condition of borrowing
equities
Activate dealer role
Activating the role of the
market makers in the stock
market
Promote QFI investment
Developing an investment
environment that promotes
institutional-level
investments and meets
necessary requirements for
coping with any future
changes
Page 14 The changing landscape: Saudi Arabia’s capital markets
Recent introduction of T+2 is expected to provide custodians with the ability to match client instructions against the broker, and only settle the ones that clients have instructed
Independent custody model: overview Independent custody model: structure
Independent custody model was introduced in 2015:
► Benefit: enabled foreign investors to appoint a global or local custodian
bank to hold their assets in Saudi Arabia instead of relying on a local
broker
► Challenge: trades needed to be pre-funded, as the market operated on a
T+0 settlement time, which increases counterparty risk and makes
correcting trading errors difficult
Introduction of T+2 in 2017:
► This provides custodians with the ability to match client instructions
against the broker, and only settle the ones that clients have instructed.
► Enhancements to the Independent custody model will also enable
custodians to reject the settlement of unconfirmed trades executed by the
executing brokers.
► The new Tadawul Trading Procedures require exchange members
(brokers) to be custody members.
Execution broker
(trading)
Independent
custody member
Settlement member
Saudi Arabian Riyal Interbank Express (SARIE) —
payment settlement (cash settlement)
Tadawul
The exchange
(trading)
Securities
Depository Center
(SDC)
(cash netting,
securities
settlement)
Transaction executed within
Tadawul
Transaction executed
within TadawulSource: Tadawul, news articles
Page 15 The changing landscape: Saudi Arabia’s capital markets
CMA has developed a mechanism of trading rights to diversify and expand available investment channels
What is a
tradable right?
► Tradable rights are tradable
securities that entitle right
holders to subscribe to new
shares offered during a
capital increase.
► All shareholders registered
in the company’s records at
the end of the extraordinary
general meeting (EGM) are
entitled to tradable rights.
► The EGM is convened for
voting on the decision of the
capital increase (registered
shareholders). Each right
grants its holder the
eligibility to subscribe to a
new share at the offering
price.
Summary of
new trading framework
Introducing live subscription feature
► Investors can subscribe immediately
after the settlement of bought rights.
Allocating one subscription period
for all investors
► All investors can subscribe in one
phase instead of two separated
phases.
► The entire tradable rights
process (starting from the EGM
date until allocation) will be
shortened to a maximum of
28 days instead of 34 days.
► Similar to the buy/sell
mechanism of shares, all
investors may subscribe to rights
through the trading platform. This will be
in addition to any other subscription
channel provided by the broker.
Shortening periods of tradable rightsSubscribing through the trading
platform
1. 2.
4.3.Source: Tadawul, news articles
Page 16 The changing landscape: Saudi Arabia’s capital markets
Short selling allows investors to make gains in a declining market and/or offers the option to hedge
The CMA’s recent announcement also relates to the introduction of securities lending and covered short selling. Both these decisions go
hand in hand, since short selling is usually executed by borrowing and then selling the borrowed security with the intention of buying it
back later at a lower price.
Source: Tadawul, news articles
* A real human being as opposed to a corporation, which is often treated by law as a fictitious person.
Short selling
► Covered short selling is allowed for investors other than natural persons.* However, investors have to borrow securities and have them
settled on their account before selling short.
► Short selling could only be conducted from specially designated accounts — short-selling accounts
Securities borrowing and lending (SBL)
► SBL activities are handled completely bilaterally, while the SDC only facilitates a free-of-payment (FOP) transfer of securities based on instruction from
counterparties.
► SBL transactions originate outside of the exchange, and negotiations take place bilaterally. However, the SDC provides a Tadwulaty platform that allows initiation
of a request for interest for borrowing and lending securities.
► There are two types of SBL transactions ― fixed-term and open-ended.
Section
M&A activity
03
Page 18 The changing landscape: Saudi Arabia’s capital markets
Low oil prices and global slowdown has impacted the M&A activity in Saudi Arabia both in terms of value and volume during 2014–16; however, 1H17 showed significant improvement in the M&A activity, especially in terms of value raised
Saudi Arabia M&A activity (2012–1H17)
1,801
3,233 3,438
4,344
1,572 1,501
1,300
1,000
1,746
3,500
9,215
48
71 72
66
63
24
0
10
20
30
40
50
60
70
80
0
2,000
4,000
6,000
8,000
10,000
12,000
2012 2013 2014 2015 2016 1H17
Num
ber o
f deals
(volu
me)
Deal
valu
e (
US
$m
)
Deal value (US$m) Deals greater than US$1b Number of deals
Aramco invested in
Lanxess (Germany)
PIF invested in Uber
Mosaic and SABIC acquire
40% concession rights in
Al Khabra and Umm Wu’al
from Ma’aden
► Value of disclosed deals,
excluding the PIF and Uber deal,
has come down in 2016 compared
with the past five years
Source: Mergermarket, ThomsonOne, Capital IQ, EY analysis
Note: both completed and announced deals have been considered in the analysis; transactions that are less than US$5m and 5% stake have not be considered in our analysis; deals with disclosed values are only considered for analysis based
on value; all disclosed deals with value more than US$1b have been included separately to show the impact of the deal in the overall trend.
► Aramco agrees
to buy RAPID
project for
US$7b
► Tronox (US)
agrees to buy
National
Titanium
Dioxide for
~US$2.2b
Bahri merger with Vela
(Aramco subsidiary)
Page 19 The changing landscape: Saudi Arabia’s capital markets
2,1261,870
2,127
751 685
4,564
9,136
1,709
155
5,430
1,047
1,440
1,609
48 48
3230 30
2120
18 1816
1210
41
0
10
20
30
40
50
60
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Consumerproducts
Diversifiedindustrialproducts
Real estateand hospitality
Providercare
Professionalfirms
and services
Technology Oil and gas Construction Powerand utilities
Chemicals Metalsand mining
Othertransportation
Other sectors
Num
ber o
f deals
Deal
valu
e (
US
$m
)
Deal value (US$m) Number of deals
The consumer products, diversified industrial products, and real estate and hospitality sectors were the most active sectors, contributing to ~40% of the total deal volume between 2012 and 1H17 in Saudi Arabia
Saudi Arabia M&A activity by top sectors* — value and volume (2012–1H17)
► Top five sectors by volume* form
55% of the total number of deals
during 2012–1H17
► Top 10 sectors by volume* forms
82% of the total number of deals
during 2012–1H17
Source: Mergermarket, ThomsonOne, Capital IQ, EY analysis
* Top sectors include top 10 by value or volume during the period; rest of the sectors are classified as “other sectors,” which includes agriculture; aerospace and defense; asset management; automotive; banking and capital markets; insurance;
media and entertainment; and telecommunications (volume indicates number of transactions).
Includes US$7b
investment of Saudi
Aramco in RAPID
project (Malaysia)
Page 20 The changing landscape: Saudi Arabia’s capital markets
Both M&A and IPO activity have declined during the economic slowdown in Saudi Arabia; however, M&A activity is still largely active, with investors looking to capitalize on the opportunities or consolidate business to stay relevant in the market
Saudi Arabian M&A vs. IPO activity — comparison of number of M&A deals vs. number of IPOs
48
71 72
6663
24
7
5
6
4
3
0 0
1
2
3
4
5
6
7
8
0
10
20
30
40
50
60
70
80
2012 2013 2014 2015 2016 1H17
Num
ber o
f IPO
sN
um
ber
of
M&
A d
eals
Number of M&A deals Number of IPOs
Continual decline in M&A and IPO
activity in 2015–1H17
Source: Mergermarket, ThomsonOne, Thomson Reuters Eikon, Capital IQ, EY analysis
Page 21 The changing landscape: Saudi Arabia’s capital markets
Saudi Arabian companies were involved in more than 63% of the cross-border deals by volume during 2012 and 2016, of which 43% were with other Middle East and North Africa countries, followed by 30% with European countries
Saudi Arabia M&A deal flow analysis (2012–1H17)
83US$5.3b
133US$18.9b
128US$8.5b
KSA
Australia
and
Oceania
4US$0.04b
Key
Outbound: outflow of deals from Saudi Arabia to other countries
Inbound: inflow of deals to Saudi Arabia from other countries
Domestic: deals within Saudi Arabia
11US$1.1b
18US$9.6b
Asia14US$2.5b
12US$4.1b
18US$0.4b
45US$2.9b
40US$1.3b
52US$2.1b
Europe
Africa*South
America
North
America
US$32,649m#344
US$10,633m#29
US$5m#1
US$3,319m#63
US$6,586m#26
US$188m#1
US$43m
#4
US$3,405m#92
Other
MENA
countries
1US$0.005b
1US$0.2b
Source: ThomsonOne, Mergermarket, public Source, EY analysis
Note: Chart represents volume of deals from Saudi Arabia deal flow perspective; “#” represents number of deals; The volume and value of deals mentioned in the charts is the consolidated value for the period from 2012 to 2016; “Other MENA
countries” excludes Saudi Arabia
* Africa excludes North Africa. The overall deal values might not sum up to the total deal value due to rounding.
Section
Capital markets performance snapshot
04
Page 23 The changing landscape: Saudi Arabia’s capital markets
The Nomu market has fallen by over 35% by the end of June 2017 since its launch, while the TASI, REITs, mutual funds and ETFs indices have been positive in the first half of 2017
Source: Tadawul, EY analysis.
*Nomu index — six months’ return based on start date 26 February 2017 to 22 June 2017; Mutual fund performance is based on average of performance of all the mutual funds for six months and one year ending 31 July 2017; ETFs
performance based on an average of three ETFs listed in Tadawul; six month index return indicates change in index between last trade date of December 2016 and June 2017; one year index return indicates change in index between last
trade date of June 2016 and June 2017.
4.0%
1.4%
7.5%
–36.4%
3.0%
–40.0% –30.0% –20.0% –10.0% 0.0% 10.0%
Six months index return (percentage) One year index return (percentage)
Tadawul all share index (TASI) — main market
Nomu- parallel market index
REITs
Mutual funds
ETFs 17.0%
4.4%
n/a
n/a
14.2%
0.0% 5.0% 10.0% 15.0% 20.0%
Capital markets performance at the end of June 2017
Page 24 The changing landscape: Saudi Arabia’s capital markets
Out of the 20 sector indices in the Tadawul main market, 9 showed positive returns, with food and beverages, media and utilities sector indices being the top three in 1H17
Source: SAMA, Tadawul, EY analysis
*New sector classification of Tadawul (effective 8 January 2017); market capitalization as of 22 June 2017 (last trade date of 1H17); conversion rate of SAR1 to US$0.266631; six-month index return indicates change in index between last trade
date of December 2016 and June 2017; one-year index return indicates change in index between last trade date of June 2016 and June 2017.
0.5
0.7
0.9
1.1
1.9
2.1
3.5
3.9
5.3
7.0
7.4
7.6
10.5
11.6
29.0
30.8
33.3
46.9
124.6
141.7
0 50 100 150
REITs
Media
Consumer durables and apparel
Pharma, biotech and life sciences
Food and staples retailing
Commercial and professional services
Transportation
Consumer services
Capital goods
Energy
Retailing
Health care equipment and services
Diversified financials
Insurance
Utilities
Food and beverages
Real estate management and development
Telecommunication services
Banks
Materials
7.5%
20.3%
–14.5%
–13.2%
8.0%
–23.9%
–6.4%
–20.4%
–17.0%
–13.7%
–17.7%
1.2%
–12.9%
3.3%
12.1%
26.8%
–0.1%
0.8%
7.4%
–2.7%
–30% –20% –10% 0% 10% 20% 30%
0.0%
12.6%
–16.0%
–4.6%
2.8%
–5.8%
–17.8%
–23.5%
–6.7%
–4.5%
–14.0%
9.5%
–9.1%
11.5%
30.2%
43.4%
13.6%
4.4%
20.1%
10.0%
–40% –20% 0% 20% 40% 60%
Market capitalization (US$b) Six-month index return (percentage) One-year index return (percentage)Main market sectors
TASI: 3% TASI: 14%
Tadawul main market sector performance at the end of June 2017
Section
Equity market trends – Tadawul main market
05
Page 26 The changing landscape: Saudi Arabia’s capital markets
9,574.5
11,061.1
8,284.9
5,459.8 5,416.5
7,166.4
125.8
115.2
45.1
26.0
53.9
0
20
40
60
80
100
120
140
0
2,000
4,000
6,000
8,000
10,000
12,000
Jan
-12
Fe
b-1
2
Mar-
12
Ap
r-1
2
May-1
2
Jun
-12
Jul-
12
Au
g-1
2
Se
p-1
2
Oct-
12
No
v-1
2
De
c-1
2
Jan
-13
Fe
b-1
3
Mar-
13
Ap
r-1
3
May-1
3
Jun
-13
Jul-
13
Au
g-1
3
Se
p-1
3
Oct-
13
No
v-1
3
De
c-1
3
Jan
-14
Fe
b-1
4
Mar-
14
Ap
r-1
4
May-1
4
Jun
-14
Jul-
14
Au
g-1
4
Se
p-1
4
Oct-
14
No
v-1
4
De
c-1
4
Jan
-15
Fe
b-1
5
Mar-
15
Ap
r-1
5
May-1
5
Jun
-15
Jul-
15
Au
g-1
5
Se
p-1
5
Oct-
15
No
v-1
5
De
c-1
5
Jan
-16
Fe
b-1
6
Mar-
16
Ap
r-1
6
May-1
6
Jun
-16
Jul-
16
Au
g-1
6
Se
p-1
6
Oct-
16
No
v-1
6
De
c-1
6
Jan
-17
Fe
b-1
7
Mar-
17
Ap
r-1
7
May-1
7
Jun
-17
Bre
nt c
rude o
il pric
e p
er b
arre
l (US
$)
TA
SI
TASI Brent crude spot price (US$)
TASI had broadly mirrored oil price movement during 2012-1H17. From middle of FY14 to the last quarter, significant decline in oil prices reflected panic investor sentiment, where TASI fell by 5,645 points from its highest level of 11,061 in FY14 to its lowest of 5,416 in FY16 from where it has improved during 1H17
TASI and Brent crude oil spot price per barrel (2012–1H17)
Source: EIA, Thomson Reuters Eikon, Capital IQ , EY analysis
Slump in oil prices due to the oversupply
of crude had a major impact on TASI
Highest peak in crude price
Highest peak in TASI
Lowest crude price
Lowest TASI
Deflection points
Brent crude prices start falling
TASI starts falling
Page 27 The changing landscape: Saudi Arabia’s capital markets
140.2173.2
142.1117.1
136.5 141.7
82.0
101.3137.0
115.7114.5
124.6
40.7
50.0 46.9
43.845.0
46.914.9
21.5 27.0
27.2
33.933.3
14.9
20.727.2
23.1
23.530.8
15.3
16.717.2
18.0
25.7
29.0
10.3
9.810.6
10.8
11.4
11.6
21.5
25.319.0
16.6
12.7
10.5
1.5
2.85.6
5.0
7.4
7.6
5.9
9.4 11.5
9.6
6.27.4
26.2
36.639.3
34.2
31.6
27.0
373.4
467.4483.4
421.0
448.5
470.3
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
500.0
2012 2013 2014 2015 2016 1H17
Mark
et
capitaliz
ation (
US
$b)
Other sectors
Retailing
Health care equipment and services
Diversified financials
Insurance
Utilities
Food and beverages
Real estate management and development
Telecommunication services
Banks
Materials
Among the top 10 sectors by market capitalization, real estate management and development, and utilities were the only two sectors that grew each year during 2012–16, while the diversified financials sector saw a drop in market capitalization each year after 2013
Market capitalization by sector* in Tadawul (2012–1H2017)
Source: Tadawul, EY analysis
*New sector classification of Tadawul (effective 8 January 2017); market capitalization as of December end of each year; top 10 sectors are based on 1H17 market capitalization; conversion rate of SAR1 to US$0.266631; other sectors include
energy, capital goods, transportation, consumer services, commercial and professional services, food and staples retailing, pharmaceutical, biotechnology and life sciences, consumer durables and apparel, media and REITs.
Top three sectors
Next top two sectors
► The top 10 sectors form an average of 93% of the total market
capitalization during 2012–1H17
► The top five sectors on an average represented 78% of the
market capitalization during the period
► By the end of 1H17, contribution of food and beverages sector
and banking sector to total market capitalization has increased
by 1.8% and 1% respectively, compared with 2016
Top 10 sectors
1
2
3
4
5
6
7
8
9
10
xSector contribution ranking based
on 1H17 market capitalization
Top three sectors
70% 69% 67% 66% 66%
Next top two sectors
8% 9% 11% 12% 13%
67%
14%
Page 28 The changing landscape: Saudi Arabia’s capital markets
The real estate management and development, utilities, and food and beverages sectors were the top three market capitalization gainers among all the sectors in Tadawul, considering the impact of new listings over the past five years
Tadawul market capitalization by sector* — growth vs. change in contribution (2012–16)
Source: Tadawul, EY analysis
*New sector classification of Tadawul (effective 8 January 2017); conversion rate of SAR1 to US$ 0.266631; 1H17 not included, since information from 2012 to 2016 is for the full year.
► The National Commercial Bank (NCB) listing improved the market
capitalization of the banking sector
► However, the listing of the Alandalus Property Company in 2016 did not
have much impact on the market capitalization of the real estate sector
The size of the bubble represents the market
capitalization (in US$b) of the respective sectors
at the end of December 2016.
Y axis
This represents the CAGR growth of market
capitalization of respective sectors between
2012 and 2016 (e.g., the market capitalization of
the health care equipment and services sector
grew by 48% during the period).
X axis
This represents each sector’s change in
contribution to the total market capitalization
between 2016 and 2012. (e.g., contribution of
the health care equipment and services sector’s
market capitalization to the total market
capitalization was 1.6% in 2016 and 0.4% in
2012. A change of 1.2% is represented).
Key
Materials
136.5
Banks
114.5Telecommunication
services45.0
Real estate
management and development
33.9
Utilities
25.7
Food and
beverages23.5
Diversified
financials12.7
Insurance
11.4
Energy
7.9
Health care
equipment and services7.4
Capital
goods6.8
Retailing
6.2
Transportation
4.8
Consumer
services4.5
Commercial and
professional services2.6
Food and staples
retailing1.8
Pharma, biotech
and life sciences1.3
Consumer
durables and apparel
1.0
Media
0.9
REITs
0.1
–30.0%
–20.0%
–10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
–8.0% –6.0% –4.0% –2.0% 0.0% 2.0% 4.0%
CA
GR
(perc
enta
ge)
of
mark
et
capitaliz
ation,
by
secto
r (2
012
–16)
Change in contribution to total market capitalization by sector between 2012 and 2016 (percentage)
► Market capitalization of the materials sector
did not increase, even though there were
three new listings during the period
► New listings of Saudi German Hospital and Al Hammadi in the health
care equipment and services sector helped to lift its market
capitalization by 4.8 times between 2012 and 2016
► SGS listing in the transportation sector supported the market capital
growth by 3.8 times during the period
Page 29 The changing landscape: Saudi Arabia’s capital markets
9,5006,433
10,02912,470 14,187
4,532
15,333
10,423
15,69313,213
14,184
3,527
17,669
11,143
11,39613,902
12,327
5,339
11,595
6,396
8,6467,730
9,560
2,737
5,142
2,683
4,7184,153
3,230
1,385
3,145
2,548
3,584 2,3012,726
856
9,766
5,874
8,0764,459
2,600
745
1,678
885
1,750
1,2761,370
597
494
630
737
5491,187
481
1,965
903
1,090
8071,082
573
6,259
4,584
5,086
5,1375,276
2,794.7
82,545
52,502
70,803
65,99667,729
23,567
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2012 2013 2014 2015 2016 1H17
Yearl
y share
s t
raded (
in m
illio
ns)
Other sectors
Consumer durables and apparel
Consume services
Energy
Telecommunication services
Food and beverages
Capital goods
Insurance
Real estate management and development
Materials
Banks
The yearly shares traded in Tadawul have stabilized to an extent after a steep fall in 2013, with the banking sector gaining prominence among investors, while trading in the telecommunication sector has dropped during 2012–16
Yearly shares traded by sector* in Tadawul (2012–1H2017)
Source: Tadawul, EY analysis
*New sector classification of Tadawul (effective 8 January 2017); top ten sectors are based on 2016 shares traded; Other sectors include transportation, retailing, media, commercial and professional services, utilities, diversified financials, food
and staples retailing, health care equipment and services, pharma, biotech and life sciences, and REITS.
► The top 10 sectors by shares traded form an
average of ~92% of the total yearly shares traded
during 2012–16
► In 1H17, contribution of real estate management and
development sector to total shares traded was at
23% compared with 18% in 2016
1
2
3
4
5
6
7
8
9
10
xSector contribution ranking based
on 2016 shares traded
Page 30 The changing landscape: Saudi Arabia’s capital markets
The banking sector witnessed the maximum increase in trading activity over the past five years, with a CAGR growth of ~11% and change in contribution of ~9%
Source: Tadawul, EY analysis
*New sector classification of Tadawul (effective 8 January 2017); 1H17 not included since information from 2012 to 2016 is for full year.
Tadawul shares traded in a year, by sector* — growth vs. change in contribution (2012–16)
Banks
14,187
Materials
14,184Real estate
mgmt and dev't12,327
Insurance
9,560Capital goods
3,230
Food and
beverages2,726
Telecommunication
services2,600
Energy
1,370
Consumer
services1,187
Consumer
durables and apparel1,082
Transportation
1,006
Retailing
986
Media
640
Commercial and
professional Svc638
Utilities
607
Diversified
financials506
Food and
staples retailing
503
Health care
equipment and svc
304 Pharma,
biotech and life science
48REITs
37
–40.0%
–30.0%
–20.0%
–10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
–9.0% –4.0% 1.0% 6.0% 11.0%
CA
GR
(perc
enta
ge)
of
yearl
y s
hare
s t
raded,
by
secto
r (2
012
–16)
Change in contribution to total yearly shares traded between 2012 and 2016 (percentage)
► The new listing of NCB did not contribute
much to the yearly shares traded, as it
formed just 1% of the total banking sector
activity in 2016
► There was a change of more than 35% in market
activity in both sectors (with just two companies each).
However, shares traded by each sector form just 1% of
the total shares traded in Tadawul
► Yearly shares traded in the
telecommunication
services have dropped by
almost a quarter over the
past five years
► No new listings have been
registered in the sector
during the period
► The real estate
management and
development sector
witnessed a heavy fall
in activity, although
there was a new
listing in 2016
The size of the bubble represents the total
yearly shares traded (in millions) of the
respective sectors during 2016
Y axis
This represents the CAGR growth (%) of total
yearly shares traded by the respective
sectors between 2012 and 2016 (e.g., the
yearly shares traded by the
telecommunication services declined by
–28% during the period)
X axis
This represents each sector’s difference in
contribution (in %) to the total yearly shares
traded between 2016 and 2012 (e.g., the
contribution of the telecommunication
services sector’s yearly shares traded to total
shares traded was 4% in 2016 and 12% in
2012. A change of –8% is represented)
Key
Section
IPO trend analysis — Tadawul main market
06
Page 32 The changing landscape: Saudi Arabia’s capital markets
Since 2012, 25 companies have raised US$10.5b though IPOs in Tadawul main market; 2014–16 witnessed limited IPO activity in Saudi Arabia, while no companies went public in 1H17
KSA IPO activity — value and volume (2012–1H17)
1,420
523
6,726
1,107
745
0
7
5
6
4
3
0
1
2
3
4
5
6
7
8
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2012 2013 2014 2015 2016 1H17
Volu
me (n
um
ber o
f IPO
s)
Capital
rais
ed (
US
$m
)
Capital raised (US$m) Volume (number of IPOs)
Source: Thomson Reuters Eikon, Capital IQ, EY analysis.
Note: No companies completed IPO in Tadawul main market in 1H17.
► NCB raised US$6b through IPO
during 2014
Page 33 The changing landscape: Saudi Arabia’s capital markets
Average size of IPOs in Saudi Arabia during the last five years was ~US$ 188m, excluding the largest IPO (NCB), valued at US$6b
Average size of IPOs (2012–16)
203
105
1,121
277248
0
200
400
600
800
1,000
1,200
2012 2013 2014 2015 2016
Ave
rag
e I
PO
siz
e (
US
$m
)
Average of all IPOs:
US$421m
Average (excluding NCB):
US$188m
Source: Thomson Reuters Eikon, Capital IQ, EY analysis.
Note: No companies completed IPO in Tadawul main market in 1H17.
Page 34 The changing landscape: Saudi Arabia’s capital markets
Materials and health care were the other two prominent sectors in terms of capital raised in Saudi Arabia, apart from banking
KSA’s IPO activity by sector — value (2012–16)
US$752m
US$5,998m
US$584.6m
US$1,120.9m
US$880.1m
US$354.1m
Banks
Materials
Health care
Transportation
Commercial and
professional
services
Capital goods
Retailing
Consumer
durables
and apparel
Real estate
management
and
development
Food and
staples
retailing
Insurance
Consumer
services
NCB
City Cement, Northern Cement,
Najran Cement, Alyamamah Steel,
MEPCO, UACC, Takween
Saudi German Hosptl, Al Hammadi,
Dallah Health, National Medical Care Co
Saudi Ground Services
Al Tayyar Travel Group, Abdul
Mohsen Al Hokair Group
Saudi Air Lines Catering
US$338.3m
US$134.4m
US$127.3m
US$100.8m
US$72m
US$58m
EIC, Bawan
SACO
L’azurde
Andalus
Farm Superstores
Jazira Takaful, Alinma Tokio,
Metlife AIG ANB
NCB’s US$6b IPO was the largest IPO in MENA. It
was oversubscribed by 23 times.
Source: Thomson Reuters Eikon, Capital IQ, EY analysis.
Note: No companies completed IPO in Tadawul main market in 1H17; company names based on respective Tadawul trading name.
Page 35 The changing landscape: Saudi Arabia’s capital markets
The slumping oil prices and general economic slowdown affected the number of companies going for IPOs during 2015–16
KSA IPO activity by sector — volume (2012–16)
Sector
Year Banks
Capital
goods
Commercial
and
professional
services
Consumer
durables
and apparel
Consumer
services
Food and
stapled
retailing
Health care
equipment
and services Insurance Materials
Real estate
management
and
development Retailing Transportation Total
FY12 1 1 1 1 3 7
FY13 1 1 2 1 5
FY14 1 1 1 1 1 1 6
FY15 1 1 1 1 4
FY16 1 1 1 3
Total 1 2 1 1 2 1 4 3 7 1 1 1 25
Materials and health care contributed 44% to the total number of IPOs raised during 2012–16.
Source: Thomson Reuters Eikon, Capital IQ, EY analysis.
Note: No companies completed IPO in Tadawul main market in 1H17.
Page 36 The changing landscape: Saudi Arabia’s capital markets
The average price-to-earnings multiple of IPOs in Saudi Arabia at the time of listing was ~14.6x, excluding the National Medical Care Company, during the past five years
Price-to-earnings (P/E) multiple* IPOs in Saudi Arabia at the time of listing (2012–16)
13.0
21.2
14.2
17.7
14.9
0.0
5.0
10.0
15.0
20.0
25.0
2012 2013 2014 2015 2016
Ave
rag
e y
earl
y P
/E r
atio/m
ultip
le
► The National Medical Care Company (Care) had a P/E
ratio of 35.9x, which moved the average P/E for the year
from 13.9x to 21.2x.
► All IPOs: 15.7x
► Excluding Care: 14.6x
Average P/E ratio
Source: Thomson Reuters Eikon, Capital IQ, EY analysis.
Note: * P/E multiple unavailable for Umm Al-Qura Cement Company, which was a greenfield project, and for all of the three insurance companies that were making losses prior to their IPOs; No companies completed IPO in Tadawul main market in 1H17.
Page 37 The changing landscape: Saudi Arabia’s capital markets
Health care equipment and services and retailing were the top sectors, with the highest average P/E multiple at the time of listing in Saudi Arabia
P/E multiple of IPOs in Saudi Arabia at the time of listing, by sector* (2012–16)
Source: Thomson Reuters Eikon, EY analysis
Note: *New sector classification of Tadawul (effective 8 January 2017); P/E multiple unavailable for Umm Al-Qura Cement Company, which was a greenfield project, and for all of the three insurance companies that were making losses prior to their IPOs; No companies completed IPO in Tadawul main market in 1H17.
4
1
1
1
1
7
2
1
1
2
1
3
Number of companies
Excluding the P/E of Care (46.7x), the average of
health care equipment and services would have
been 16.2x. The sector would have still been one
of the top sectors with the highest P/E ratio at the
time of listing.
Saudi Company for Hardware was the only IPO in
the retailing sector.
In the materials sector, Takween Advanced
Industries had a P/E ratio of 24.3x, and the lowest
P/E was 6x for City Cement Company.
10.2
11.9
12.1
12.6
14.5
14.7
15.1
15.5
15.7
22.3
23.8
P/E multiple at the time of listing
Banking
Health care equipment and services
Retailing
Transportation
Consumer durables and apparel
Real estate management and development
Materials
Capital goods
Food and staples retailing
Insurance
Consumer services
Commercial and professional services
n/a
Page 38 The changing landscape: Saudi Arabia’s capital markets
Majority of the companies offered 30% equity for the initial public listing in Saudi Arabia. IPO proceeds were used as exit routes by shareholders in 60% of the public issues during the five years
Exit by shareholders
60%
Meeting working capital
requirements/improving solvency position 12%
Expand operations
28%
5
2
4
1
1
4
1
4
3
0 1 2 3 4 5 6
25%
30%
50%
Number of IPOs
Equity
off
erings (
perc
enta
ge)
2016 2015 2014 2013 2012
All the four materials sector (cement
segment) companies that completed
IPOs in the period offered a 50% equity
offering
► The CMA approved NCB’s equity
offering of 25% owned by the PIF
► The exception to the NCB by the
CMA on the lower equity offering
was after considering the number
of shares offered (500m)
Source: Tadawul, IPO prospectus, Thomson Reuters Eikon, EY analysis
Note: No companies completed IPO in Tadawul main market in 1H17.
Among the IPOs in Saudi Arabia during
the 2012–16 period, 80% offered
equity of 30%, which was the minimum
level set by the CMA for listing
Percentage of equity offered by KSA IPOs (2012–16) KSA IPOs — use of proceeds analysis (2012–16)
Page 39 The changing landscape: Saudi Arabia’s capital markets
Slowdown in the Saudi Arabian economy during 2016 also impacted the IPO market, with average returns of listed companies during 2016 being negative, as well as much lower average oversubscription rates compared with the previous four years
IPO oversubscription rate and average return (percentage) generated post listing in Tadawul, by year (2012–16)
Source: Thomson Reuters Eikon, SAMA, public sources, EY analysis
Note: Averages are based on holding period returns during the respective years; week one considers return as at the end of 7 days after listing, first month considers return as at the end of 30 days after listing, first year-end return considers return at the end of 31 December for the respective year of listing; no companies completed IPO in Tadawul main market in 1H17.
0
–20
140
100
160
120
40
20
200
180
0% 0%
2014
28%
189%
100%108%
42%
0%
2013
29%
–19%
2015
–1%
144%
41%
23%
–17%–4% –4%
2012 2016
3%
–2%–3%
Average day-one return (percentage) Average week-one return (percentage) Average first year-end return (percentage)Average first month return (percentage)
Retu
rns (
in p
erc
enta
ge)
Average oversubscription
rate: (2012–16): 10.2x8.1x 21.6x 7.7x 3.5x6.2x
The average returns of companies
listed on Tadawul during 2016 were
negative.
2013 witnessed high average
returns across categories. This
was largely due the returns of the
two insurance companies Metlife
AIG ANG and Jazira Takaful.
2014 witnessed a high
oversubscription rate for IPOs, with
five out of six companies being
oversubscribed by more than
23 times.
Page 40 The changing landscape: Saudi Arabia’s capital markets
Source: Thomson Reuters Eikon, SAMA, public sources, EY analysis
*New sector classification of Tadawul (effective 8 January 2017); averages are based on holding period returns of IPOs classified under the respective sectors during 2012–16; week one considers return at the end of 7 days after listing; first
month considers return at the end of 30 days after listing; first year-end return considers return at the end of 31 December for the respective year of listing; no companies completed IPO in Tadawul main market in 1H17.
The insurance, and food and staples retailing sectors witnessed the highest first month and year-end return among other sectors during the period. Health care equipment and services witnessed the highest positive average returns across all four categories
IPO oversubscription rate and average return (in percentage) generated post listing in Tadawul, by sector* (2012–16)
0
–50
300
250
200
100
50 36%
–5%
30%
–2%
Consumer
durables and
apparel
–47%Transportation
–18%
–5%
0%
11%
12%23%
0%9%7%
Insurance
6%
108%
60%
0%
Retailing
–2%
34%
–20%–8%
–2%
295%
Consumer
services
5%
38%38%32%
0%
Materials
20%
40%
Health care
equipment and
Services
43%56%
Commercial and
professional
Services
30%22%
2%
3%
Capital goods
23%
12%
25%
0%
Banks
220%
34%
0%
Real estate
management
and development
–1%
23%16%
Food and
staples
retailing
190%
Average day-one return (percentage)
Average first year-end return (percentage)
Average week-one return (percentage)
Average first month return (percentage)
Sto
ck r
etu
rns (
perc
en
tag
e)
Average
oversubscription
rate
16.4 5.6 2.9 14.8 25.5 10.1 12.3 5.0 7.8 9.1 6.223.0
Sectors with top average stock returns attained for
first month and first year end
Sectors with positive stock returns across all four
return time line categories post-listing
Page 41 The changing landscape: Saudi Arabia’s capital markets
Metlife AIG ANG and Jazira Takaful witnessed the highest returns after the first month and first year-end post-listing on Tadawul. Five out of six companies that completed an IPO during 2014 had been oversubscribed by more than 23x compared with an average of 10x during the five years
Source: Tadawul, Thomson Reuters Eikon, public sources, EY analysis
Note: week one considers return at the end of 7 days after listing; first month considers return at the end of 30 days after listing; first year-end return considers return at the end of 31 December for the respective year of listing; No companies
completed IPO in Tadawul main market in 1H17; company names based on respective Tadawul trading name.
IPO oversubscription rate and average share price return (in percentage) of IPOs listed in Tadawul, by issuer (2012–16)
2010–10–20 300 7060
–11%
–13%
30%
–1%
2%
–9%
–14%
60%
–11%
60%
23%
60%
60%
21%
60%
2%
–1%
60%
–8%
–2%
–5%
32%
34%
18%
60%
400–50 50 300 350100 1500
327%
–8%
–19%
39%
–8%
–15%
44%
–19%
22%
6%
353%
71%
281%
193%
21%
16%
34%
38%
108%
6%
–7%
–20%
6%
12%
–15%
Week-one share price return First-month share price return First year-end share price return
–100 5000 100 200 400
29%
174%
7%
–14%
190%
11%
–27%
–18%
–2%–36%
5%
500%
–33%
386%
232%
–3%
–23%
–27%
28%
60%
–9%
2%
–47%
–1%
30%
Returns (percentage) Returns (percentage) Returns (percentage)
Average: 59% Average: 57%
16
6 6
3 5
3
5
8
9
9
12
3
24 23
25 26
23 8
8
9
6 8
5 3
3
50 25 3015 2010
IPO subscription rate
2012
2013
2014
2015
2016
Issuers
Subscription rate
Average: 10x
Six out of seven
companies listed on
Tadawul during 2015
and 2016 witnessed a
negative share price
return.
Average: 20%
Takween
Dallah Health
Jazira Takaful
Alinma Tokio M
ALTAYYAR
Catering
City Cement
Najran Cement
EIC
Al Hammadi
Farm Superstores
NCB
Al Hokair Group
Metlife AIG ANB
Northern Cement
Bawan
Care
Saudi German Hosptl
LAZURDE
ALYAMAMAH STEEL
ALANDALUS
SGS
SACO
MEPCO
UACC
Page 42 The changing landscape: Saudi Arabia’s capital markets
With just 4 out of 25 IPOs backed by private equity firms, PE back exits in the Saudi Arabian capital markets did not see much prominence during 2012–16
Private equity (PE)-backed KSA IPOs (2012–16) PE-backed KSA IPOs by sector (2012–16)
Source: Tadawul, prospectus, EY analysis
Note: Analysis is based on the publicly available information at the first level of shareholding at the time of listing. All offerings where a PE had 5% or more shareholdings at the time of listing were considered for the analysis. The analysis does
not include insurance companies; *New sector classification of Tadawul (effective 8 January 2017); there were no private equity backed IPOs during 2013 and 2015.
365
388
127
1
2
1
0
1
2
3
0
50
100
150
200
250
300
350
400
2012 2014 2016
Num
ber o
f IPO
s
Capital
rais
ed (
US
$m
)
Capital raised (US$m) Volume
127
585
168
0 300 600
Consumerdurables and
apparel
Consumer services
Health careequipment and
Services
1
2
1
VolumeAverage P/E multiple at
the time of listing
15.5x
Capital raised (US$m)
11.9x
15.2x
Page 43 The changing landscape: Saudi Arabia’s capital markets
2.9%
4.2%
3.6% 3.7%
4.7%
2.6% 2.8%
1.4%
2.3%
2.1%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
2012 2013 2014 2015 2016
Perc
enta
ge
Total IPO expenses as a percentage of capital Raised Underwriting fees as a percentage of capital raised
Total expense for IPOs in Saudi Arabia was, on average, 3.7% of the capital raised, with underwriting expense forming around 55% of the total expense for IPOs over the last five years
IPO expense and underwriting fee as a percentage of capital raised (2012–16)
Underwriting fees:
► Average : 2.3%
► Median : 2.8%
Total IPO expense:
► Average : 3.7%
► Median : 3.7%
Median
Average
Source: Tadawul, prospectus, Thomson Reuters Eikon and EY analysis
Note: total IPO expense as a percentage of capital raised of NCB, Takween, Alinma Tokio Marine and METLIFE AIG ANB has been excluded from the above analysis, as they were outliers; underwriting fee analysis excludes NCB, which is an
outlier. Non-meaningful data is also excluded from the analysis; no companies completed IPO in Tadawul main market in 1H17.
Page 44 The changing landscape: Saudi Arabia’s capital markets
Majority of the underwriters charged fees of ~2.8% of capital raised from issuers in Saudi Arabia during 2012–16
Source: Tadawul, IPO prospectus, Thomson Reuters Eikon, EY analysis
Note: Analysis based on companies with meaningful data available in the sources; n/a indicates data not available or not meaningful; outliers (NCB, Takween, Alinma Tokio Marine and METLIFE AIG) are excluded to calculate average and
median; no companies completed IPO in Tadawul main market in 1H17; company names are based on respective Tadawul trading name.
IPO expense as a percentage of capital raised, by issuer (2012–16) Underwriting fee as a percentage of capital raised, by issuer (2012–16)
5.4%
5.5%
3.1%
5.0%
1.4%
3.8%
4.4%
2.7%
0.1%
3.2%
3.2%
4.4%
4.8%
4.8%
26.1%
5.1%
3.8%
3.1%
3.7%
1.6%
2.5%
3.7%
2.9%
15.3%
9.0%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Lazurde
Alyamamah Steel
Saudi German Hosptl
Alandalus
SGS
SACO
MEPCO
EIC
NCB
Al Hammadi
Al Hokair Group
UACC
Farm Superstores
Bawan
Metlife AIG ANB
Jazira Takaful
Care
Northern Cement
Dallah Health
City Cement
Catering
Altayyar
Najran Cement
Alinma Tokio M
Takween
2.8%
0.8%
2.8%
2.8%
1.0%
2.8%
2.8%
0.5%
0.1%
1.0%
2.2%
2.1%
na
3.4%
2.8%
2.8%
2.8%
2.3%
2.8%
na
na
2.8%
2.0%
2.8%
2.8%
0.0% 1.0% 2.0% 3.0% 4.0%
Lazurde
Alyamamah Steel
Saudi German Hosptl
Alandalus
SGS
SACO
MEPCO
EIC
NCB
Al Hammadi
Al Hokair Group
UACC
Farm Superstores
Bawan
Metlife AIG ANB
Jazira Takaful
Care
Northern Cement
Dallah Health
City Cement
Catering
Altayyar
Najran Cement
Alinma Tokio M
Takween
► Higher percentage, as the capital raised
was just US$16m, although the total
expense reached US$2.4m
► Lower percentage, as the capital raised
was the highest (US$6b) in five years,
although the fees was just US$6.7m
Average: 3.7%
Median: 3.7%
Average: 2.3%
Median: 2.8%
► Higher percentage, as the capital raised
was just US$14m, although the total
expense reached US$3.6m
► The highest underwriting
fee has been charged for
the IPOs of Middle East
Healthcare Co.
(~US$13m) and Al
Tayyar Travel Group
(~US$10m) since 2012
Section
Sukuk market
07
Page 46 The changing landscape: Saudi Arabia’s capital markets
The Saudi sukuk market remained fairly subdued from 2014–16, as the complexity of sukuk issuance continued to weigh on the issuance volume. However, 1H17 showed significant improvement in sukuk issuances
Total value/total number of sukus issued and trend of Sukuk issuance (2012–1H17)
Source: Thomson Eikon, News articles, EY analysis
The value of Sukuk issued decreased by 78.7% during the period 2012–16, owing to the Saudi Arabia’s greater preference for conventional bond issuance. The size and frequency of sukuk
issuance reduced from 2014 onward due to complexity in the Islamic debt market, resulting from the differences in Sharia interpretation with the global standards, along with the introduction of
innovatively structured sukuks. In 1H17, the total value increased on account of the issuance of banking and financial sector sukuks.
6,254
10,057
5,027 4,640
1,334
3,423
7
10
9 9
4
3
0
2
4
6
8
10
12
0
2,000
4,000
6,000
8,000
10,000
12,000
2012 2013 2014 2015 2016 1H17
Num
ber o
f Sukuk is
sued
US
$m
Total value of sukuk issued # of sukuk issued
0
500
1,000
1,500
2,000
2,500
3,000
2012 2013 2014 2015 2016 1H17
US
$m
Range Mean Median
The major sukuk issuance by
banks and other financials
sector resulted in a spike in
the average deal size in 1H17
Page 47 The changing landscape: Saudi Arabia’s capital markets
With the tenure extended from five to seven years, various sectors prefer the sukuk market, with the biggest number issuance by the banking and financial sector
Sukuk issuance value (US$m) and volume by sector (2012–1H17)
2012 2013 2014 2015 2016Sectors
Aerospace4,001
# 1
Agency
Banking
Chemicals
Electric utility
Financial*
Food processing
Industrials
Oil and gas
Services
Transportation
Utility
4,057
# 1
5,33# 1
1,280
# 3
2,134
# 3
2,400
# 3
2,800
# 5
1,067
# 2
587
# 2
1,200
# 1
707# 2
2,400# 2
173# 1
267# 1 # 1
267
# 1
800
# 3
427
# 1
107
# 1
267
# 1
133# 1
1,040
# 1
667
# 1
0.3
Total
8,481
533
9,681
587
1,200
6,547
1,493
107
267
133
1,040
667
#4
#1
#16
#2
#1
#8
#5
#1
#1
#1
#1
#1Source: Thomson Eikon
* The financial sector comprises financial institutions other than banksTop three sectors by value
1H17
423
# 2
3,000# 1
# - number of sukuk issuances.
Page 48 The changing landscape: Saudi Arabia’s capital markets
All the sectors posted an investment grade with low risk and relative ability to meet financial commitments
Fitch long-term issuer default ratings (2012–16)
Sukuk issuance across various sector was backed by ratings reflecting low risk and high credit quality
Ratings and their risk denominations
AAA to A–
BBB+ to B–
CCC to C
D
RD
High credit quality and low risk
Good credit quality; however, speculative
Substantial to high credit risk
High default risk
Restricted default
Agency*
Banking
Chemicals
Oil and gas
Utility
Low High
Low High
Low High
Low High
Low High
Low High
Low High
Low High
Low High
Low High
Low High
Low High
Low High
Low High
Low High
Low High
Fitch long-term issuer default rating (risk profile)
2012 2013 2014 2015
Low High Low HighLow HighLow High
Low High
Low High
Low High
Low High
2016
Low High
Sectors
Source: Thomson Eikon
Note: a few sectors have been excluded from the analysis, including aerospace, financial, food processing, industrials, and service and transportation, due to data paucity. 1H17 sukuk issuances excluded due to data paucity
* Agency includes Saudi Telecom Company.
Page 49 The changing landscape: Saudi Arabia’s capital markets
Banks have been consistently contributing to sukuk issuance over the last five years, as sukukclassifies for the Tier II capital requirements under Basel III
Source: Thomson Reuters, news articles
*Yearly sukuk issuance value.
Note: 1H17 not considered due to data paucity
Major avenues of investing the sukuk proceeds by sectors
1Used to strengthen Tier II
capital to comply with
regulations
Banking
2Used to strengthen Tier II
capital to comply with
regulations
Aerospace
3Used to strengthen Tier II
capital to comply with
regulations
Food processors
4 Meeting working capital requirement; refinancing financial obligations andcapital expenditure
Utility
2012 2013 2014 2015 2016
US$6,253m* US$10,056m* US$5,027m* US$4,640m* US$1,334m*
Aerospace — to construct
new King AbdulAziz
International Airport
Financial — to purchase
assets and on sale
commodities for business
purposes
Banking — to strengthen
Tier II capital to comply with
regulatory purposes
Food processing — for
general purposes
Aerospace — to finance
expansion of Jeddah's King
Abdulaziz Airport and King
Khaled International Airport
Financial — to fund
construction of plant and lease
the issuer’s proportional
interest
Banking — to strengthen
Tier II capital for regulatory
purpose and to
expand Islamic banking
Food processors —
general purposes
Banking — strengthen Tier II
capital for regulatory purpose
and to expand Islamic banking
Services — to meet working
capital requirements, refinance
existing debt, meet capital
expenditure and make other
investments
Industrial — for general
purposes and refinancing of the
existing debt
Financial — for general
purposes and repayment of its
existing debt, and financing of
investments
Food processors — to
finance capital investment
program and invest in
strategies for funding
diversification
Banking — to strengthen Tier II
capital for regulatory purpose
and to expand Islamic banking
Financial — used for
refinancing of debt and
general business purposes
Banking — used for general
purposes, including
repayment of financial
obligations
Oil and gas — for
strengthening the reserves
Utility — to meet working
capital requirements,
refinance existing debt and
meet capital expenditure
Section
08
REITs market
Page 51 The changing landscape: Saudi Arabia’s capital markets
REITs will modernize the Saudi capital market and will further help in realizing the National Transformation Program under Saudi Vision 2030
Source: Tadawul
Structure of the REITs
REIT
Properties Custodian Unit holders
Property managerFund’s board of directors
Fund manager
Real estate management
service
Income generated from rent
Property management fee
Real estate ownership
Working in the interest of the unit
holders
Real estate custody fees
Fee
Investment in the funds
Management services Management fee
Dividend distribution
► In Saudi Arabia, a REIT is defined as a closed-
ended investment company that owns income-
producing real estate
► REITs are traded as units at Tadawul and are
traded as equities in the market. They are
generally managed by collectively investing and
owning real estate projects, which in turn qualify to
generate a periodical income in the form of cash
dividends
► Unlike real estate investment funds (REIFs),
REITs are flexible to trade due to the lack of
complexity, transparency, subscription and
liquidation
► REITs can help realize the broader goals of the
National Transformation Program (NTP) and Saudi
Vision 2030. The NTP mentions several initiatives
which aim to increase the real estate sector’s
contribution to overall GDP
► In Saudi Arabia, due to the nature of the real
estate sector, with frequent rent reviews and asset
appreciation, REITs can be an effective hedge
against inflation
► REITs bring in alternative sources of finance to the
private sector, which can facilitate the participation
of the private sector in raising the supply of real
estate
How can REITs benefit the Saudi capital market?
DiversificationStronger historical
returnsAccessibility Transparency
REITs can offer diversification
benefits to the investors by
allowing them to spread their
risks in multiple real estate
segments (residential,
commercial, industrial and
agricultural properties) and
markets (25% of REITs can be
invested outside the Kingdom).
The zero tax for remitted
dividends for Saudi REITs,
namely other asset classes,
increases its attractiveness to the
QFIs. Currently, foreign investors
need to pay a withholding tax
rate of 5% when repatriating
dividends.
Accessibility to Tadawul and tax
benefits for QFIs will bring in
higher participation from the
QFIs. Their increased
participation in the capital market
will modernize the economy,
along the lines of Vision 2030.
The introduction of REITs in the
Kingdom, coupled with effective
regulatory oversight, will ensure
increased levels of transparency,
with an improved real estate
transparency score (ranked 63
out of 109 constituents) and will
bring about growth in the sector.
Page 52 The changing landscape: Saudi Arabia’s capital markets
REITs are at a nascent stage and introduction of regulations will bring in standardization
Source: Tadawul
REIT
assets
Foreign
asset
restrictions
► REITs can invest in residential, commercial, industrial and
agricultural properties; whether they are local, regional or
global. However, they cannot invest in vacant lands.
► The value of assets invested outside the
Kingdom should not exceed 25% of a
REIT's total asset value.
► Closed-ended fund
Number of
investors
Public
ownership ► Minimum 50
► Minimum 30% of total
REIT units owned by
public
► Open to Saudi and GCC
citizens, and non-Saudi
residents in the Kingdom
Investor
ownership
► SAR10 per unit
► Minimum SAR100m
► Should not exceed 50% of total fund asset value
► Minimum 75% of total asset value invested in income-producing real estate
► 90% of the fund’s net income to be distributed to unit holders as cash dividends at least once a year
Investment opportunities
Legal form
Investor restrictions
Nominal value
Capital requirement
Borrowing restrictions
Investment policy
Distribution requirements
Reinvesting profits ► Minimum of 90% of profit to be distributed and only 10% of profits allowed to be reinvested
Page 53 The changing landscape: Saudi Arabia’s capital markets
Saudi REITs trade in low volumes due to the unfavorable market conditions in the real estate sector
REITs issued in Saudi Arabia
Initial investor sentiments
spiked the value traded on the
second day of listing
Source: Tadawul, EY analysis
1Riyad REIT
fund
Objective is to invest in income-producing real estate assets in Saudi
Arabia
Dividend yield: 2.12%
2AlJazira Mawten
REIT fund
Objective is to invest in AlKhumrah warehouses in
Jeddah city
Dividend yield: na
2.93
3.18
0
10
20
30
40
50
0.0
1.0
2.0
3.0
4.0
5.0
13 N
ov 1
6
20 N
ov 1
6
27 N
ov 1
6
04 D
ec 1
6
11 D
ec 1
6
18 D
ec 1
6
25 D
ec 1
6
01 J
an 1
7
08 J
an 1
7
15 J
an 1
7
22 J
an 1
7
29 J
an 1
7
05 F
eb
17
12 F
eb
17
19 F
eb
17
26 F
eb
17
05 M
ar
17
12 M
ar
17
19 M
ar
17
26 M
ar
17
02 A
pr
17
09 A
pr
17
16 A
pr
17
23 A
pr
17
30 A
pr
17
07 M
ay 1
7
14 M
ay 1
7
21 M
ay 1
7
28 M
ay 1
7
04 J
un 1
7
11 J
un 1
7
18 J
un 1
7
Volu
me tra
ded (m
illions)
Price (
US
$)
2.93
4.89
0
5
10
15
20
25
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
15 F
eb
17
22 F
eb
17
01 M
ar
17
08 M
ar
17
15 M
ar
17
22 M
ar
17
29 M
ar
17
05 A
pr
17
12 A
pr
17
19 A
pr
17
26 A
pr
17
03 M
ay 1
7
10 M
ay 1
7
17 M
ay 1
7
24 M
ay 1
7
31 M
ay 1
7
07 J
un 1
7
14 J
un 1
7
21 J
un 1
7
Volu
me tra
ded (m
illions)
Price (
US
$)
Page 54 The changing landscape: Saudi Arabia’s capital markets
Jadwa REIT Al Haramain Fund and Taleem REIT Fund are newly listed REIT funds and the performance have been relatively stable since listing
REITs issued in Saudi Arabia
3Jadwa REIT Al
Haramain Fund
Objective is to investprimarily in real estate
assets in the Holy cities of Makkah and Al Madinah
Dividend yield: na
4Taleem REIT Fund
Objective is to invest in or acquiring real estate assets
that are linked to the educational or training
sector
Dividend yield: na
Source: Tadawul, EY analysis
2.93 3.18
0
10
20
30
40
50
0.0
1.0
2.0
3.0
4.0
5.0
30 A
pr
17
02 M
ay 1
7
04 M
ay 1
7
06 M
ay 1
7
08 M
ay 1
7
10 M
ay 1
7
12 M
ay 1
7
14 M
ay 1
7
16 M
ay 1
7
18 M
ay 1
7
20 M
ay 1
7
22 M
ay 1
7
24 M
ay 1
7
26 M
ay 1
7
28 M
ay 1
7
30 M
ay 1
7
01 J
un 1
7
03 J
un 1
7
05 J
un 1
7
07 J
un 1
7
09 J
un 1
7
11 J
un 1
7
13 J
un 1
7
15 J
un 1
7
17 J
un 1
7
19 J
un 1
7
21 J
un 1
7
Volu
me tra
ded (m
illions)
Price (
US
$)
2.93
3.36
0
10
20
0.0
1.0
2.0
3.0
4.0
5.03
0 M
ay 1
7
31 M
ay 1
7
01 J
un 1
7
02 J
un 1
7
03 J
un 1
7
04 J
un 1
7
05 J
un 1
7
06 J
un 1
7
07 J
un 1
7
08 J
un 1
7
09 J
un 1
7
10 J
un 1
7
11 J
un 1
7
12 J
un 1
7
13 J
un 1
7
14 J
un 1
7
15 J
un 1
7
16 J
un 1
7
17 J
un 1
7
18 J
un 1
7
19 J
un 1
7
20 J
un 1
7
21 J
un 1
7
22 J
un 1
7
Volu
me tra
ded (m
illions)
Price (
US
$)
Section
Nomu market
09
Page 56 The changing landscape: Saudi Arabia’s capital markets
The parallel market is expected to deepen the capital market base and achieve Saudi Arabia’sVision 2030
Additional source of funding for SMEs to access capital
Increased diversification and deepening of the capital market
Objective of
establishing
Nomu market► The parallel market is an alternative
platform for companies to go public with
less stringent listing requirements, and
incorporates companies with lower market
capitalization (minimum SAR10m).
► The Nomu market opened a new avenue
for SMEs to raise capital in a more cost-
effective manner compared with the main
market (Tadawul).
► It will also provide an additional exit route
to PE investments in SMEs.
► Lower floatation requirement (20% vs.
30% in the main market) will make Nomu
attractive for family-owned businesses,
which will help them enhance their
corporatization.
► Introduction of Nomu market supports the
Vision 2030 objectives, which envisages
increasing the SME contribution to 35% of
the GDP from 20% currently. It also aims
at further developing the capital markets.
Source: Saudi Arabia - all industries – all sectors (Al Rajhi Capital), Tadawul, News articles
Company
type
Company
performance
Financial
statements
Investors’
share
At least 20% of shares owned by qualified institutions, with 5% as individual limit
Legal advisor
Financial advisor mandatory; legal advisor optional
Lock-in period
100% of pre-offering investor shares for one year
Market
capitalization
Minimum SAR10m
Criteria for offering and listing processes
► Saudi Joint Stock Company
► A majority of its capital
owned by citizens of a
Member State of the GCC
and enjoys a nationality in
the Gulf region
► Minimum one year of
operational and
financial performance
► No profitability track
record required
► Annual audited statements
► Quarterly reviewed FSs
► Disclosure of material information
Shareholding
► If market value for all shares to be listed is more than SAR40m — minimum 50 public shareholders
► If market value for all shares to be listed is less than SAR40m — minimum 35 public shareholders
Page 57 The changing landscape: Saudi Arabia’s capital markets
Nomu- parallel market is restricted to qualified investors; Authorized Persons (APs) must determine the eligible investors
Who can invest in the parallel market?
1 APs, for their own accounts
2Clients of APs, provided AP is appointed as an investment manager to take the decisions
3Government of the Saudi Arabia or anybody recognized by the authority/exchange
4Government-owned companies
5 GCC-based companies and funds
6Investment funds
7 QFIs
► Natural person allowed to open an investment account
► An account in the Securities Depository Center
► Fulfilling any of the below criteria:
► Has conducted transactions in the security market of not
less than SAR40m in total and not less than 10 transaction
in each quarter during the last 12 months (LTM)
► Average size of the natural person’s portfolio exceeds
SAR10m during the LTM
► Holds the General Securities Qualification Certificate, which
is recognized by the authority
8Natural persons
Qu
ali
fie
d i
nve
sto
rs
Source: Saudi Arabia — All Industries — All Sectors (Al Rajhi Capital), Tadawul
Page 58 The changing landscape: Saudi Arabia’s capital markets
Liberal listing and capitalization requirements make way for capital raising and provide PE exit routes to SMEs and family-owned businesses
Source: Saudi Arabia — All Industries — All Sectors (Al Rajhi Capital), Tadawul
Key differences Main market Nomu — parallel market
Minimum market capitalization SAR100m (US$27m) SAR10m (US$3m)
Percentage offered At least 30% At least 20%
Public shareholders At least 200 (a)If expected aggregate market value for all shares to be listed
exceeds SAR40m, at least 50 public shareholders required
(b)If expected aggregate market value for all shares to be listed is
less than SAR40m, at least 35 public shareholders required
Continual obligations
Standard disclosure requirements. Disclosure of
quarterly financial statements within 30 calendar
days from the end of the period and year-end
financial statements within 90 calendar days from
the end of the period
(a) Lighter financial disclosure requirements (with regard to time
permissible to disclose)
(b)
Disclosure of quarterly financial statements within 45 calendar
days from the end of the period and year-end financial
statements within 90 calendar days from the end of the period
Daily fluctuation limits ± 10% ± 20%
Page 59 The changing landscape: Saudi Arabia’s capital markets
The highlight of the listing is that the PE firm backed only one IPO
9.0
4.7 4.3
57.6
12.8
31.6
5.9
64.8
6.8
0
10
20
30
40
50
60
70
Al-
Om
ran
In
du
str
ial T
rad
ing
Al-
Sa
ma
an
i F
acto
ry F
or
Meta
l In
du
str
ies
De
ve
lopm
ent
Wo
rks F
oo
d
Ra
yd
an
Ab
du
llah
Sa
ad
Moh
am
me
dA
bo M
oati f
or
Boo
ksto
res
Ba
aze
em
Tra
din
g
Ara
b S
ea
Info
rmatio
nS
yste
m
Th
ob
Al A
se
el
Al K
ath
iri H
old
ing
US
$m
Expand
operation1
Exit by
shareholders 7
11.5
5.9
9.0
61.9
109.2
0 20 40 60 80 100 120
Commercial and professional services
Software and services
Capital goods
Consumer services
Retailing
PE-
backed
IPO× × × ×××
IPO objective*
Source: Company prospectus, EY analysis
× ×
* Al Kathiri Holding: 50% of IPO proceeds will be from exit by shareholders and 50% expansion operation
Size of the offering IPO activity by sector (US$m)
Page 60 The changing landscape: Saudi Arabia’s capital markets
The average P/E multiple of companies in Saudi Arabia at the time of listing was ~12.5x
P/E multiples at the time of listing in Nomu market Market capitalization at the time of listing in Nomu market
Source: Saudi All Industries Sector 2017 (Al Rajhi Capital), Thomson Eikon, EY analysis
Note: P/E multiple based on IPO price and 2016 annualized figures; market capitalization based on respective company listing day close price and outstanding shares; Thob Al Aseel was listed on 15 June 2017, Al Kathiri Holding was listed on
9 July 2017 and all other companies was listed on 26 February 2017.
8.8
11.3
13.2
14.8
12.4 12.4
17.8
11.7
9.8
0.0
5.0
10.0
15.0
20.0
Al-
Om
ran
In
du
str
ial
Tra
din
g
Al-
Sa
ma
an
i F
acto
ry F
or
Meta
l In
du
str
ies
De
ve
lopm
ent
Wo
rks
Fo
od
Ra
yd
an
Ab
du
llah
Sa
ad
Moh
am
med
Abo
Moa
tifo
r B
oo
ksto
res
Ba
aze
em
Tra
din
g
Ara
b S
ea
Info
rmatio
nS
yste
m
Th
ob
Al A
se
el
Al K
ath
iri H
old
ing
PE
multip
le
Average PE: 12.5
53.8
28.1 26.0
230.4
76.8
126.4
35.2
54.4
20.8
0.0
50.0
100.0
150.0
200.0
250.0
Al-
Om
ran
In
du
str
ial
Tra
din
g
Al-
Sa
ma
an
i F
acto
ry F
or
Meta
l In
du
str
ies
De
ve
lopm
ent
Wo
rks
Fo
od
Ra
yd
an
Ab
du
llah
Sa
ad
Moh
am
med
Abo
Moa
tifo
r B
oo
ksto
res
Ba
aze
em
Tra
din
g
Ara
b S
ea
Info
rmatio
nS
yste
m
Th
ob
Al A
se
el
Al K
ath
iri H
old
ing
Mark
et
capitaliz
ation (
US
$)
Average market capitalization: US$72.4m
Page 61 The changing landscape: Saudi Arabia’s capital markets
Removing the outlier*, the average weekly returns from the day of listing was at 3.2%. Additional listings will improve the position in the long run
Week-end returns from the day of listing in the parallel market
58.4%
11.4%
(4.9%)
(8.2%)
1.6%
16.7% 16.3%
9.5%
(16.9%)
(30.0%)
(20.0%)
(10.0%)
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Arab Sea InformationSystem
Abdullah SaadMohammed Abo
Moati for Bookstores
Raydan Baazeem Trading Al-Omran IndustrialTrading
Development WorksFood
Al-Samaani FactoryFor Metal Industries
Thob Al Aseel Al Kathiri Holding Co
Retu
rn (
perc
enta
ge)
Average: 9.3%
Average*: 3.2%
Source: Tadawul, EY analysis
* Outlier — Excluding Arab Sea Information System Co.
Page 62 The changing landscape: Saudi Arabia’s capital markets
Volume traded in the parallel market has declined significantly over the period compared with the initial surge
Volume traded and closing index price in the Nomu market
1,597
1,1651,017
0.0
2.0
4.0
6.0
8.0
0
1,000
2,000
2/2
6/2
017
3/5
/2017
3/1
2/2
017
3/1
9/2
017
3/2
6/2
017
4/2
/2017
4/9
/2017
4/1
6/2
017
4/2
3/2
017
4/3
0/2
017
5/7
/2017
5/1
4/2
017
5/2
1/2
017
5/2
8/2
017
6/4
/2017
6/1
1/2
017
6/1
8/2
017
Volu
me tra
ded (m
illion)
Nom
u index
Volume traded Nomu Index
Source: Tadawul
Note: Average trade size is defined as cumulative volume traded divided by number of trades.
Key statistics
(as on 22 Jun 2017)
% index
change: –36.3%
Value traded (US$):
1.0m
Volume traded:
122,904
Section
Mutual funds and ETFs
10
Page 64 The changing landscape: Saudi Arabia’s capital markets
AUMs from 2014 onward declined by double digits, stemming from the slow economic growth, however, the Q1 2017 shows significant improvement in the numbers
Total AUMs for investment funds — the investment funds in Saudi Arabia are the largest assets managed in the GCC region, at US$27.9b
23.5
27.529.5
27.4
23.4
27.9
240 236
252
270275 275
0
50
100
150
200
250
300
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2012 2013 2014 2015 2016 Q1 2017
Num
ber o
f inve
stm
ent fu
nds
Investment funds* (US$b) Number of operating funds
Source: SAMA
*Investment funds comprise mutual funds and ETFs.
Inve
stm
ent
funds (
US
$b)
Page 65 The changing landscape: Saudi Arabia’s capital markets
The mutual industry in Saudi Arabia is primarily dominated by equity funds, and a major proportion of these funds focus on capital preservation
0.7%
1.5%
3.7%
4.0%
4.0%
7.7%
15.8%
62.6%
Other funds Funds of funds Bond/debt funds
Multi-assets funds Real estate funds Balanced funds
Money market funds Equity funds
Types of mutual funds in Saudi Arabia,
H1 2017
Composition of equity-
based mutual funds,
H1 2017► Stock fund or equity fund is a fund that invests in stocks; it is also called equity
securities
► Money market fund is an open-ended mutual fund that invests in short-term debt
securities, such as treasury bills and commercial paper
► Balanced funds are geared toward investors who are looking for a mixture of safety,
income and modest capital appreciation
► A real estate fund is a type of mutual fund that primarily focuses on investing in
securities offered by public real estate companies
► A multi-asset fund is a combination of asset classes (such as cash, equity or bonds)
used as an investment
► Debt funds primarily invest in bonds and other debt instruments, and will suit
investors who want to optimize current income assuming low to moderate levels
of risk
► A fund of funds is an investment strategy of holding a portfolio of other investment
funds rather than investing directly in stocks, bonds or other securities
► A growth fund is a diversified portfolio of stocks that has capital appreciation as its
primary goal, with little or no dividend payouts
► An income and growth fund is a mutual fund that has a dual strategy of capital
appreciation and current income generation through dividends or interest payments
► Income funds are mutual funds that seek to generate an income stream for
shareholders by investing in securities that offer dividends or interest payments
► A capital appreciation fund attempts to increase asset value, primarily through
investments in growth stocks
Key terms
Source: Tadawul
84.8%
13.5% 0.6%
1.2%
Capital preservation
Growth
Income
Income and growth
Page 66 The changing landscape: Saudi Arabia’s capital markets
8.1
4.22.9 2.8
1.5 1.3 1.1 1.0 0.6 0.4
25
18
36
13
19
14 14
12
16
10
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Majority of the funds managed have been invested in domestic assets in Saudi Arabia valued at US$19b and foreign investments accounts valued at close to US$5b in Q1 2017
Top 10 mutual fund mangers in Saudi Arabia (industry overview) — Q1 2017
Fund Managers
Sources: Tadawul, GulfBase, Business Wire
AUMs (US$b) Number of funds managed
NCB Capital
Company
Samba Capital &
Investment
Management Co
Riyad Capital
Company
Al Rajhi Capital HSBC Saudi
Arabia Limited
Saudi Fransi
Capital
Arab National
Investment
Company
Aljazira Capital Alawwal Invest Jadwa
Investment
Page 67 The changing landscape: Saudi Arabia’s capital markets
22.3
7.7
10.9
–2.7 –1.3
34.8
15.5
3.1
5.1
–7.9–6.0
34.1
11.8
–5.9–5.1
–12.1
5.3
26.4
9.7
0.5
3.0–1.4
–0.1
25.2
6.0
25.5
–2.4
–17.1
4.3
–1.6
–20
–10
0
10
20
30
40
2012 2013 2014 2015 2016 YTD(31st July 2017)
Perf
orm
ance g
row
th (
%)
HSBC China and India Equity Freestyle Fund
Samba Capital China Opportunities Fd (Al Izdihar)
Riyad South East Asian Fund
HSBC Global Emerging Markets Equity Fund
Saudi Fransi Al Naqaa Asia Growth Fund
Saudi Tadawul All Shares
The following charts showcase the top-performing funds based on the performance growth rate in July 2017
Top five performing funds as of 31 July 2017
αβ σ
1,19 0.43 13.02
1.20 0.63 16.63
1.22 –0.13 11.69
1.23 –0.24 11.85
1.58 –0.72 11.87
1
Source: Tadawul, Thomson Reuters Eikon
Note: “β” “α” and “σ” are the “Beta” “Alpha” and “Standard deviations” respectively of the fund for the one-year period as of 31 July 2017.
Page 68 The changing landscape: Saudi Arabia’s capital markets
15.5
3.1 5.1
–7.9 –6.0
34.1
6.0
25.5
–2.4
–17.1
4.3–1.6
–20
–10
0
10
20
30
40
2012 2013 2014 2015 2016 YTD(31st July
2017)
Perf
orm
ance g
row
th (
%)
Samba Capital China Opportunities Fd (Al Izdihar)
Saudi Tadawul All Shares
HSBC China and India Equity Freestyle Fund reported the highest growth, with a one-year beta value of close to one, depicting price movement in line with market from 2012 to 2016
HSBC China and India Equity Freestyle Fund
Samba Capital China Opportunities Fd (Al Izdihar)
Source: Thomson Reuters Eikon
Note: Performance growth Year-to-date (YTD) data is as 31st July 2017. Since top holdings information is not available, industry-based holdings have been considered.
Versus benchmark One year Three year Five year
Alpha 0.43 0.28 0.28
Beta 1.19 0.93 1.01
Information Ratio 0.62 0.13 0.14
R-square 0.93 0.79 0.77
Sharpe Ratio 0.59 0.14 0.21
Standard Deviation 13.02 14.99 15.21
Treynor Ratio 1.86 0.64 0.89
Top holdings*ldings
Tencent Holdings Ltd. 10%
Alibaba Group Holding Ltd. 9%
China Mobile Ltd 6%
Infosys Ltd. 6%
Baidu Inc. Sponsored ADR 6%
Wipro Ltd. 5%
Maruti Suzuki India Ltd. 4%
Versus benchmark One year Three year Five year
Alpha 0.63 –0.26 –0.09
Beta 1.20 0.78 0.79
Information Ratio 0.28 –0.11 –0.08
R-square 0.58 0.71 0.69
Sharpe Ratio 0.43 0.06 0.10
Standard Deviation 16.63 23.68 20.80
Treynor Ratio 1.67 0.55 0.75
Top holdings*
Information Technology 33.31%
Financial 31.77%
Consumer 11.64%
Telecommunication Services 10.26%
Energy 4.07%
Real Estate 3.59%
22.3
7.710.9
–2.7
–1.3
34.8
6.0
25.5
–2.4
–17.1
4.3
–1.6
–20
–10
0
10
20
30
40
2012 2013 2014 2015 2016 YTD(31st July
2017)
Perf
orm
ance g
row
th (
%)
HSBC China and India Equity Freestyle Fund
Saudi Tadawul All Shares
Page 69 The changing landscape: Saudi Arabia’s capital markets
11.8
–5.9
–5.1
–12.1
5.3
26.4
6.0
25.5
–2.4
–17.1
4.3
–1.6
–20
–10
0
10
20
30
2012 2013 2014 2015 2016 YTD(31st July
2017)
Perf
orm
ance g
row
th (
%)
HSBC Global Emerging Markets Equity Fund
Saudi Tadawul All Shares
Riyad South East Asian Fund reported a positive growth rate in 2016 compared with a negative growth in 2015
Riyad South East Asian Fund
HSBC Global Emerging Markets Equity Fund
Source: Thomson Reuters Eikon
Note: Performance growth Year-to-date (YTD) data is as 31st July 2017. *Information not available.
Versus benchmark One year Three year Five year
Alpha –0.13 0.07 –0.07
Beta 1.22 1.13 1.13
Information Ratio 0.21 0.08 –0.01
R-square 0.96 0.95 0.91
Sharpe Ratio 0.48 0.07 0.11
Standard Deviation 11.69 16.45 15.02
Treynor Ratio 1.32 0.28 0.43
Versus benchmark One year Three year Five year
Alpha –0.24 0.02 –0.07
Beta 1.23 0.98 0.99
Information Ratio 0.11 0.01 –0.05
R-square 0.97 0.92 0.91
Sharpe Ratio 0.45 0.01 0.05
Standard Deviation 11.85 15.50 14.49
Treynor Ratio 1.25 0.06 0.21
Top holdings
Tencent Holdings Ltd. 8%
Alibaba Grp HLD-ADR 6%
Taiwan Semiconductor 6%
China Mobile Ltd. 4%
Yandex NV 3%
18.5
5.4
–2.6–7.5
2.2
29.4
6.0
25.5
–2.4
–17.1
4.3–1.6
–20
–10
0
10
20
30
40
2012 2013 2014 2015 2016 YTD(31st July
2017)
Perf
orm
ance g
row
th (
%)
Riyad South East Asian Fund Saudi Tadawul All Shares
Top holdings*ldings
Taiwan Semiconductor -
Aia Group Ltd -
Tencent Holdings -
Samsung Electronics -
Alibaba Group co -
HDFC Bank Ltd -
Indust. & Coml Bank China -
Page 70 The changing landscape: Saudi Arabia’s capital markets
15.2
–5.6
0.6
–13.1
8.7
24.1
6.0
25.5
–2.4
–17.1
4.3
–1.6
-20
-10
0
10
20
30
2012 2013 2014 2015 2016 YTD(31st July
2017)
Perf
orm
ance g
row
th (
%)
Riyad Future Equity Fund Saudi Tadawul All Shares
Saudi Fransi Al Naqaa Asia Growth Fund and Riyad Future Equity Fund have reported significant growth in 2016 and have performed above the market index in the same time period
Saudi Fransi Al Naqaa Asia Growth Fund
Riyad Future Equity Fund
Source: Thomson Reuters Eikon
Note: Performance growth Year-to-date (YTD) data is as 31st July 2017. *Information not available
9.7
0.53.0
-1.4 -0.1
25.2
6.0
25.5
-2.4
-17.1
4.3
-1.6
-20
-10
0
10
20
30
2012 2013 2014 2015 2016 YTD(31st July
2017)
Perf
orm
ance g
row
th (
%)
Saudi Fransi Al Naqaa Asia Growth Fund Saudi Tadawul All Shares
Versus benchmark One year Three year Five year
Alpha –0.72 0.13 –0.04
Standard Deviation 11.87 14.57 13.90
Beta 1.58 1.07 1.03
Information Ratio –0.01 0.09 –0.01
R-square 0.95 0.87 0.74
Sharpe Ratio 0.36 0.08 0.12
Treynor Ratio 0.77 0.32 0.48
Versus benchmark One year Three year Five year
Alpha –0.23 0.10 –0.01
Beta 1.22 1.12 1.15
Information Ratio 0.09 0.07 0.02
R-square 0.93 0.93 0.91
Sharpe Ratio 0.44 0.03 0.06
Standard Deviation 12.15 17.68 16.72
Treynor Ratio 1.26 0.13 0.27
Top holdings
Latin America Fund -
China Focus Fund -
India Focus Fund -
Equities South Africa -
Top holdings*ldings
Tencent Holdings Ltd. 6.4%
Alibaba Group ADR 5.1%
Taiwan Semiconductor 4.8%
Baidu INC-US-ADR 2.0%
CSL Ltd. 1.9%
China Mobile Ltd. 1.9%
Largan Precision 1.4%
Infosys Ltd. 1.2%
Page 71 The changing landscape: Saudi Arabia’s capital markets
Overview of Saudi Arabia’s major ETFs
FALOM ETFs
FALCOM Saudi Equity ETF
Sector allocation
(percentage of total portfolio)
Al Rajhi 19.88%
SABIC 13.92%
Jabal Omar 8.58%
STC 5.02%
Almarai 4.92%
MA’wgADEN 3.79%
Saudi Electricity 3.79%
SAVOLA Group 3.72%
Alinma 3.57%
Jarir 2.85%
SABIC 56.69%
YANSAB 9.85%
SAFCO 9.21%
Advanced 7.42%
TASNEE 7.22%
Petrochemical 4.63%
Sipchem 2.65%
Alujain 1.34%
CHEMANOL 0.70%
NAMA 0.29%
Top 10 holdings
(percentage of total portfolio)
Top 10 holdings
(percentage of total portfolio)
FALCOM Petrochemical ETF
56.69%
9.85%
9.21%
7.42%
7.22%
4.63%
2.65% 1.34%
0.70%
0.29% SABIC
YANSAB
SAFCO
Advanced
TASNEE
Petrochemical
Sipchem
Alujain
CHEMANOL
NAMA
23.0
29.8
28.624.8
27.728.1
20
25
30
35
2012 2013 2014 2015 2016 1H17
Unit p
rice (
SA
R)
FALCOM 30 Saudi Equity
24.1
31.727.9
20.0
26.2
26.1
20
25
30
35
2012 2013 2014 2015 2016 1H17
Unit p
rice (
SA
R)
FALCOM Petrochemical
38%
21%
13%
10%
6%
4%3%
2% 2%1% Banks
Real Estate
Food & Beverages
Telecom
Utilities
Retailing
Capital Goods
Energy
Insurance
Consumer Services
Top 10 holdings
(percentage of total portfolio)
Sources: Tadawul website, FALCOM website
Note: HSBC Saudi 20 Equity Index was not considered for the analysis due to data paucity. Top holdings and sector allocation data is as of June 2017
Section
Abbreviations and glossary
11
Page 73 The changing landscape: Saudi Arabia’s capital markets
Abbreviations
GDP Gross domestic product
TASI Tadawul All Share Index
SAMA Saudi Arabian Monetary Authority
SAIBOR Saudi Arabian Interbank Offered Rate
GFCF Gross fixed capital formation
REIT Real estate investment trust
NTP National Transformation Program
REIF Real estate investment fund
AP Authorized person
PE Private equity
IPO Initial Public Offering
P/E Price-to-earnings
AUM Asset under management
GCC Gulf Cooperation Council
ETF Exchange-traded fund
QFI Qualified foreign investors
JSC Joint stock company
LLC Limited liability company
CMA Capital Market Authority
SBL Securities borrowing and lending
SDC Securities Depository Center
SME Small- and medium-sized enterprises
CAGR Compound annual growth rate
Page 74 The changing landscape: Saudi Arabia’s capital markets
Glossary
Term Definition
AlphaA measure of active fund performance; average returns
discounted by market returns
Standard
deviationA measure of investment risk or volatility in subperiod returns
BetaA measure of sensitivity of fund performance to changes in
benchmark performance
Information
ratio
Risk-adjusted measure of performance; defined as average
return divided by standard deviation of active return
R-squareThe percentage of variability in fund performance explained by
benchmark performance
Sharpe
ratio
Risk-adjusted measure of performance, defined as average
excess return divided by standard deviation of excess return
Treynor ratioRisk-adjusted measure of performance, defined as average
excess return divided by beta
Term Definition
Natural
Person
A real human being, as opposed to a corporation, which is often
treated bylaw as a fictitious person
Custody
member
Authorized Person (AP): a member of the SDC providing
custody services for investors. AP, i.e., custody member, can,
but does not have to be an exchange member at the same time.
Exchange
member
Authorized Person (AP): an member of exchange providing
trading services for investors. AP, i.e., an exchange member,
has to be a custody member at the same time
Execution
broker
An exchange member providing trading services in respect of
transactions in deposited securities custody services that are
provided by another legal entity — an independent custody
member
Independent
custody
member
A custody member providing custody services if trading services
are provided by the execution broker
SARIENational real-time gross settlement (RTGS) payment system,
operated by SAMA, that facilities cash settlement for the SDC
SDC
The Central Securities Depository (CSD) of Saudi Arabia
performs securities settlement and cash netting, safekeeping
and registry functions. SDC operates end beneficial accounts
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