MIDEAST WEEKAHEAD-IPOs may help to revive Saudi stock market
* Market close to giving up all of this year's gains
* Petrochemicals, banks weight on market
* Listings of family firms could revive interest
* Authorities keen to encourage IPOs, analysts say
* Many family firms focused on domestic, consumer areas
By Nadia Saleem
DUBAI, Nov 21 (Reuters) - After a stellar start to the year, Saudi Arabia's stock market has lost its momentum because of disappointing earnings at blue-chip companies. Now investors are hoping a spate of new listings of family-owned businesses will restore energy to the market.
Analysts say authorities are encouraging family-owned companies to list on the exchange, partly as a way to distribute wealth more widely. Raising the income of less well-off Saudis is also the goal of the government's job creation and welfare programmes, which have been expanded in the past 18 months.
Listing family businesses, many of which are in consumer sectors rather than the capital-hungry banking and petrochemical areas, could lure money back to the stock market by giving investors more choice.
"We get the sense that there is a lot of pressure from the government on family-run businesses to go public," said Mahmoud Akbar, a banking analyst at Riyadh-based NCB Capital.
"It adds depth to the market, though the concern is whether these companies have a good track record and are not just a value trap."
The main Saudi stock index climbed as much as 24 percent in the early months of this year but has since fallen back, standing only 3 percent higher on Wednesday compared to its level at the end of last year.
One reason is authorities' slowness in opening the market to direct foreign investment. Preparations to do so have been in an advanced stage for almost a year, but authorities have not yet introduced the reform, apparently because they fear market instability; it is not clear when the reform will go ahead.
Another reason is the poor third-quarter earnings of petrochemical firms, which are heavily weighted in the index. Saudi Basic Industries Corp, the world's biggest petrochemicals group by market value, suffered a 23 percent slump in third-quarter net profit.
Such earnings have prompted investors to cut their exposure to stocks which, like petrochemicals, are vulnerable to weak demand in the global economy.
Meanwhile, banks' third-quarter earnings were disappointing; Al Rajhi Bank, Riyad Bank, Saudi British Bank and Banque Saudi Fransi all reported earnings that missed analysts' estimates, mainly due to high loan-loss provisions.
"Most analysts agree that next year we will witness slower growth in petrochems, banks and telecoms - we are witnessing maturity in the main sectors of the economy, which in return lowers the expectations of exceptional growth," said Abdullah Alawi, assistant general manager and head of research at Aljazira Capital.
"People are looking for new incentives to invest in the market."
That is where the new listings come in. The market saw six initial public offers of shares worth a total of 4.8 billion riyals ($1.2 billion) in the first nine months of this year, compared to five IPOS worth 1.73 billion riyals in all of 2011.
Many of the offers have drawn strong demand. Travel agency Al Tayyar Travel, founded in 1980 by group president Nasser bin Aqeel al-Tayyar as a single reservation office in Riyadh, raised 1.37 billion riyals from its IPO in May; the offer was 6.1 times oversubscribed. The stock is now up 9 percent from its IPO price.
The Capital Market Authority, the market regulator, has held meetings this year with private firms in Jeddah and Riyadh to encourage them to list on the exchange. The CMA did not respond to requests for comment.
A large number of private firms in the kingdom's consumer sectors are still run by members of their founding families. One example is bookstore chain Jarir Marketing, which listed on the stock market in 2003; its share price has more than quadrupled since then.
Saudi investors remain relatively favourable toward consumer stocks because those rely on local demand rather than the global economy; Jarir is up 8 percent this year, far outperforming the overall market.
"We will see a new wave of family companies going for listing soon, to compensate for the lack of growth opportunities in current stocks," said Aljazira Capital's Alawi.