NCB’s $6bn IPO lures $58bn bids despite controversy

Bloomberg

Riyadh

A fatwa against National Commercial Bank’s initial public offering could not derail the biggest-ever share sale in the Middle East.

Saudi Arabia’s largest bank said in a statement on Sunday it attracted 215.8bn riyals ($58bn) of bids from about 1.2mn investors as of 8pm in Riyadh. While that pales by comparison with the almost 9mn who subscribed for Alinma Bank’s IPO in 2008, NCB’s offering to sell 300mn shares was almost 16-times oversubscribed, signalling investors pitched for larger blocs of shares.

Saudi Arabia’s Grand Mufti Sheikh Abdulaziz Al-Sheikh said on television last month the IPO is un-Islamic, as criticism deepened over the bank’s non Shariah-compliant assets. To mitigate the controversy, NCB pledged to divest about $38bn of assets to become fully Shariah-compliant in five years. The bank’s IPO is this year’s biggest globally after Alibaba Group Holding Ltd’s September offering.

“It’s an attractive IPO and it was bound to get covered,” Mohammed Alsuwayed, a Riyadh-based financial analyst and partner at SPT Investors, a market-analytics company, said by telephone on Saturday. The fatwa has had an impact on the average Saudi, “but major investors are usually the ones that take on such a big IPO,” he said.

NCB sold 500mn shares, or a 25% stake, at 45 riyals apiece, raising $6bn and valuing the lender at about $24bn. The bank allocated 200mn shares to the kingdom’s Public Pension Fund. The sale, only open to Saudi nationals, overtakes the $5bn raised by Dubai’s DP World Ltd in 2007. Prior to NCB’s share sale, Alinma’s was the kingdom’s largest banking IPO.

Saudi Arabia is removing barriers to one of the world’s most restricted financial markets next year, where foreigners are barred from directly buying and selling domestic assets. The kingdom’s benchmark index has climbed 19% this year to close at 10,141.67 today.

“If NCB was an Islamic IPO, the number of subscribers would have definitely been very high,” Alsuwayed said. “Clients in the region prefer Islamic services. It’s a big deal for the region, especially Saudis.”

NCB’s Shariah committee said on October 16 that 67% of the bank’s assets complied with the Shariah ban on interest as of the end of June.

NCB’s shares are currently valued at as much as 65 riyals, Mohammed al-Omran, a financial analyst and president of the Gulf Center for Financial Consultancy in Riyadh, said by phone on Sunday.

“If the market breaks 11,000 points and optimism is high, there might be a chance it goes over 100 riyals,” he said.

Orders sputtered for the first 11 days of the subscription period, with bids covering 50% of the IPO. They jumped to 210% at the end of the following day.

“The IPO is very attractive to high-net-worth individuals,” Alsuwayed said. “The reason why investors waited until the last minute to subscribe is that they had to take on loans and I believe most of them are planning to liquidate once the stock is listed.”

The sale offers an investment opportunity irrespective of restrictions and the controversy over Shariah compliance, according to Al Masah Capital Ltd.

“The valuation for NCB is quite attractive when compared to the Saudi banking sector,” Shailesh Dash, chief executive officer of the Dubai-based company, said by e-mail on Sunday. There was “a good turnout considering the size of the IPO, the participation restrictions in Saudi IPOs by foreigners and the recent selloff in the market due to the oil-price decline,” he said.