Investment bank Saudi Fransi Capital has three big initial public offers of shares in the pipeline as the Saudi Arabian equity market booms and firms become keener to list, the company's chief executive said.

The kingdom's $550 billion stock market, by far the largest in the Arab world, saw just five IPOs in 2013 worth a total of around $506 million, down in both volume and value from the previous year.

But volume and value are both set to rise this year as the securities regulator encourages listings of companies which it believes contribute to economic growth.

Although the main equity index has pulled back in the last two weeks because of sliding oil prices and concern about global economic growth, it is still up 16 per cent year-to-date and up 45 per cent since the end of 2012.

In a reform designed to increase the long-term efficiency of the Saudi economy and stimulate private sector growth, the Capital Market Authority announced in July that it would open the stock market to direct foreign investment in the first half of next year.

"We have an excellent deals pipeline...We think we will see one IPO every quarter from Saudi Fransi Capital for the coming five quarters," Yasir al-Rumayyan said in an interview at the Reuters Middle East Investment Summit.

Each of the three big IPOs currently in Saudi Fransi's pipeline is larger than SR1 billion ($267 million), Rumayyan said: Sulaiman Al-Habib Medical Group, one of the largest private providers of healthcare in the region; water and power project developer ACWA Power; and Petromin, a lubricants producer.

"I have a bigger list than this one...We have another IPO in the steel sector, and one in building materials," said Rumayyan, whose company is an arm of Saudi Arabia's fourth-largest listed lender, Banque Saudi Fransi.

Saudi Arabia's National Commercial Bank is currently conducting a $6 billion IPO, the largest ever launched in the Arab world.

ASSET MANAGEMENT

The deepening of the Saudi stock market through IPOs and its opening to foreign investors are expected to support growth for asset managers in the kingdom.

"Our assets under management (AUM) is about 10 billion riyals, but this number is growing tremendously, as it was less than 5 billion in 2010," Rumayyan said.

"We want to grow like 15 to 25 per cent on an annual basis, and we think it is doable because we have been doing it in the past three or four years."

Rumayyan said his company would open an office in Dubai to cater to international investors in the brokerage and asset management sectors. In the past, Saudi banks have rarely opened overseas offices, preferring to focus on their domestic market.

The opening of the Saudi stock market to foreign institutional investors will eventually bring between $30 billion and $60 billion of funds into the bourse, especially if the market is ultimately admitted to the MSCI emerging markets index, Rumayyan estimated. The fund inflows would spur trading volume and revenues at Saudi brokerages.

"If you look at the Saudi market currently, we are ranked number 15 worldwide in terms of the daily volume - definitely if we have the international investors coming in to the market, I think we will see a minimum 15 to 20 per cent increase in daily volumes."

Like other Saudi executives, he said the plunge of global oil prices to four-year lows in the past several weeks was unlikely to hurt the economy or markets in the long term, adding that the stock market had not been closely correlated with oil for the past eight or 10 years.

"If you want to look at the real economy, you have between three and five years of backlogs of projects today with government spending, so the money is there. So even if this drop continues, you have a good three to five years of continuous government projects."

DEBT MARKET

Rumayyan also predicted strong growth for Saudi Arabia's sukuk and conventional bond markets, arguing that central bank guidance to commercial banks on limiting their exposure to single clients would push borrowers to look beyond loans.

"That means those big corporations would have to tap the capital market, whether sukuk or bonds - this really is excellent news for financial advisors like us who are involved in the capital market," he said, adding that Saudi Fransi was working on two debt issues. He did not give details.

Asked about the obstacles to developing Saudi Arabia's debt market, Rumayyan said the problem was not on the regulators' side but among the issuers, who tended to prefer bank financing as long as they could get better rates.

"The challenge now is to get good issuers to issue...Investors' appetite here in Saudi is really big, and there are a lot of money market fund managers who are waiting for and anticipating debt issuance."

He added, however, that international investors entering Saudi Arabia might not find local debt issues attractive at present, given their very low yields which are in some cases below even U.S. Treasuries. – Reuters