Saudi Arabia a wealthy Arabian state is made up of many organizations operating mostly in the oil industry. There is huge investment in the industry. Thus, it requires that capitals be sought from the public for these organizations to operate effectively. The Saudi Arabian stock market has experienced low moments of operations in contemporary times. This has resulted in many investors in shares to lose and yield low dividends. In addition, discourage many from investing. However, the story is not all bad. The stock market has assisted many firms in the IPO operations.
“Ghalayini said that between February 20 and October 7 this year — a period of nine months, there has been as many IPOs with a total value of about SR2. 9 billion. Of the total, Emaar was by far the biggest with a value of SR679. 9 million.. According to Taher, the future expected IPOs for the current joint stock companies are estimated around SR15 billion for 48 companies” (MENAFIN. com, 2000). It is germane that some companies in Saudi Arabia who have utilized IPO in raising capital are seen and compared with those who made use of private placement.
Mullak United Arabian Company, popularly called ‘Mullak is a licensed mortgage provider in the Saudi Arabian Kingdom. In the organization’s bid to raise capital via the IPO, it sought the financial advice of Siraj Capital. Siraj capital carried out its strategic financial advice to Mullak by appointing its member to the Board of Director of the organization. Here, strategic decisions are to be collaborative approach to carry out the Mullak financial plans. The Mullak approach and relationship with Siraj, is that of appointing the organization as an intermediary to directly take up the raising of the capital on behalf of Mullak.
Siraj runs its investment financial consultation through its subsidiary firm, SMHC which is a Cayman Islands investment vehicle, that is used to give international and smaller investor acquires an invest in shares from SMHC that would mirror the shares of Mullak. “Set to benefit from its key role in Saudi Arabia’s rapidly expanding housing market this is driven by one of the world fastest growing populations and lowest levels of home ownership (22%) Mullak is planning an IPO within two years.
SMHC investors will receive shares which are equivalent to Mullak shares and all benefits will pass through to the SMHC shareholders” (Siraj Capital Ltd, 2006). Turquoise International is another financial consultative organization that has assisted many Saudi Arabian organizations in raising long-term funds through IPO and PP. For instance, the Gulf Advanced Chemical Industries Company (GACIC) was advised by the Turquoise International in raising $380m on the project financing of its butanediol facility.
Saudi International Petrochemical Company (Sipchem) was also assisted by the financial consultant in raising capital to the tune of $700m; this was based on a joint venture and financing issues relating to the Sipchem acetyls complex. (Turquoise International, 2006). The Turquoise International also assists company to raise IPO. For the cited Saudi Arabian firms, GACIC and Sipchem their funds raised by Turquoise International may not be termed as IPO, but capital sourcing through private placement and other financial institutions.
Instances of firms that have carried out private placement in raising capital, through Consulting Center for Finance and Investment (CCFI), includes the following: • Al-Zamil, Saudi International Petrochemical Co: CCFI placed SR 500 million for this company in GCC countries. • Arab Banking Corporation, Bahrain: Together with Credit Suisse First Boston, CCFI was the global Coordinator for this first initial public offering in the Arab World. CCFI was also the Regional Manager for the Arab region offering.
In this capacity, it coordinated the placement efforts of nineteen financial institutions in ten different Arab countries. • Saudi Cable Company: Together with Saudi International Bank, CCFI handled the private placement of shares of this large private sector company. Placement was made in all the GCC countries. • Invest Corp Bahrain: Placement of shares in the Saudi Market G Source: GCC Market report (2007) The table above gives some data based on Saudi Arabia’s stock market trade on IPO of organizations in different industry.
ECONOMIC DRIVER FOR IPO AND PP The economic driver for Initial Public Offering has to do with the wide spread of investment that is enabling through the process. It encourages the public to invest in new field and company that they finds profitable. In addition, the company stands the chance of dividing its capital units into several millions, sometimes billions units that the public would subscribe to, therefore giving it a stream of investors. IPO encourages the growth and diversification of investments.
Here, an organization that which to diversify its operation would buy shares from a firm that operates in the area of its interest. Through IPO, an organization tends to grow to maturity stage, whereby it would have the required capital base to operate effectively. On the other hand, Private Placement is economically driven with the need to make few investors, especially those wealthy individual to invest excess of their funds in private organizations. Here, the share ownership is not widely spread but restricted. CONCLUSION / RECOMMENDATION
Initial Public Offering is a good way of raising capital especially if the firm seeks to expand its operational base. It is thus, a way of spreading the business risk associated with a firm operational areas to different investors who bears little amount of the risks shared among other shareholders. Firms seeking to carry out an IPO need the expertise of consultant and financial institutions such as banks to aid the process. The expertise requirement and the huge financial involvement for raising funds through the stock market would make the process not to be one that small-scale business should embark on.
It requires that a matured and capital consolidated company can go public through IPO. Therefore, Private Placement is a better way of sourcing for additional fund by organization, which are still young and trying to grow, expand, and consolidate on its operations. In other words, IPO would be a good source for sourcing long term fund for organization that are matured and capital consolidated, while private placement is an alternative open for those organization still trying to get on their feet.
Brau, James et al (2005), “Initial Public Offerings: An Analysis of Theory and Practice” Journal of Finance (forthcoming) http://papers. ssrn. com/so/3/papers. cfm? abstarct_id=530924 (30/04/06) Delbor, M. C. ; Sullivan, M. J. (2005), “The Initial Public Offerings of Restaurant Firms: The Case of Industry –Specific Micromarket Capitalization Offerings” Journal of Small Business management Vol. 43, Issue 3. GCC Market Report (2007), “TAIB Research”
Why Work with Us
Top Quality and Well-Researched Papers
Professional and Experienced Academic Writers
Free Unlimited Revisions
Prompt Delivery and 100% Money-Back-Guarantee
Original & Confidential
24/7 Customer Support
No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.