When and why did Saudi Tadawul Group decide to pursue an IPO?
The strategic decision to go for an IPO was made early in 2015. STG’s listing was seen as an integral part of the Financial Sector Development Plan envisaged for the Kingdom within the Vision 2030 plan of the shareholder of the sovereign fund of Saudi Arabia - the Public Investment Fund (PIF).
Although the strategic direction was set, the timing of the IPO was left open. Many factors would have to be considered to finalise the specifics of the listing - such as market conditions, domestic and foreign investors’ appetite and the perception of the exchange sector in general.
The conditions to launch the IPO were met at the beginning of 2021, triggering the IPO execution process internally and externally from a regulatory point of view. The shareholder gave the mandate to execute the IPO no later than the end of 2021.
The fundamental reasons behind pursing an IPO for STG were twofold:
Firstly, to showcase and lead by example. To create a flagship listing that would subject ourselves to the process that we require of others: i.e. moving from a private to a public market to increase transparency and maturity.
Secondly, to take advantage of being listed. To have a fair and undisputed value for the company, to be able to raise capital in the future when needed, to use our shares as a currency in the event we would be seeking inorganic growth, and finally, to join our peers in the leading group of listed exchanges.
We successfully listed the company on December 8th 2021 by floating 30% of the share capital. It was a successful IPO, oversubscribed 121 times and with a 30% retail subscription guaranteeing substantial liquidity on the market. International, regional and domestic investors were heavily represented in the IPO, and the share price had increased by more than 50% from the IPO price after a month.
How does it change business opportunities?
From a business perspective, being listed required us to reshape the organisation into a group structure, with a holding company and four subsidiaries, incorporating support functions at the holding company and focusing the subsidiaries on their core functions – trading, clearing, settlement and technology innovation. In preparation for the IPO, we implemented the organisational restructuring in the first half of 2021 and obtained the necessary legal and regulatory approvals.
The objectives one sets when operating a business as a government-owned unlisted company are very different from those of a listed company. Being owned by the sovereign fund requires a focus on developing the capital markets infrastructure and capabilities of the Kingdom.
When listed, however, the differing natures of shareholders force the consideration of a broader range of stakeholders’ objectives and profitability takes centre stage. Balancing the different interests is a delicate task.
How was the experience of listing an exchange?
Listing STG allowed us to experience the same process our issuers go through when joining the market. This provided valuable insights and lessons for our management teams, and may support future innovation in the listing process. In addition, the legal and regulatory work and the financial preparation required were essential and insightful steps that we had to traverse.
Our execution of the IPO started with a selection process to appoint the required advisers from the financial, legal and accounting worlds. We followed a rigorous and structured selection process based on their team’s scale, capability, domain experience, fees and references. Having selected the vendors, their respective roles and responsibilities had to be discussed, negotiated and agreed upon.
The financial adviser appointment was swiftly followed by a campaign to align and inform investors via early look presentations, roadshow meetings and one-to-one investor sessions - with a bifurcated focus towards domestic and international investors. The exchange business has quite a unique business model, and usually there are not many exchanges in each country; thus, educating investors requires a significant time commitment.
Listing STG allowed us to observe the process from the other side of the fence, gaining greater familiarity with the issues companies face and the questions they have to answer. The Exchange's listing authorisation and regulatory team acted independently from the IPO management team and ethical walls were established to avoid conflicts of interest.
Being listed on the Saudi Exchange required us to set up clear procedures by which ongoing obligations as a listed company are supervised and enforced by an independent team. In addition, like any publicly listed company, the dialogue with our new shareholders as well as future investors takes centre stage with investor relations being as important for us as it is for our community of over 200 listed issuers.
What developments does the future hold?
Now that we are a listed company, we can see the benefits of accessing public markets:
Increased brand equity is provided by being classified among the limited number of listed exchanges globally.
The translation of our business plans into a market valuation makes it possible for investors to evaluate management’s success directly.
The transparency required to satisfy regulatory requirements and provide information to investors builds robust management discipline.
We aim to build on the strong alignment observed between key decision-makers and regulatory authorities further by supporting the Kingdom’s privatisation plans and encouraging private companies to come to the market. The drive for private funding puts us at the core of the transformation of the Saudi economy. So far, 10 government entities have joined forces to support and incentivise companies to list on the Saudi Exchange.
Our ambition is to develop the market capitalisation of the Kingdom as well as to offer local investors a range of asset classes in which they can invest to diversify their strategies and reduce their risk exposure.
The next stage of development will likely be beyond the borders - both geographical ones as well as the traditional business model borders of other exchanges.
Our future growth is built on innovation - we must innovate to get ahead. We are seeking new paths to growth where we service a broader range of stakeholders, so that investors and entrepreneurs can benefit from our expertise.
The future for STG and the Kingdom is bright and there is no willingness nor option to stand still.
The views, thoughts and opinions contained in this Focus article belong solely to the author and do not necessarily reflect the WFE’s policy position on the issue, or the WFE’s views or opinions.