Saudi Arabia's Jabal Omar Development Co., which is building hotels and apartments in Makkah, opens an initial public offering on Saturday to raise 2.01 billion riyals ($537 million).

Analysts expect the IPO to be oversubscribed, given the location of the project near Islam's holiest shrine, the low listing price and the strong appeal of real estate investment after last year's stock market crash.

Jabal Omar will offer Saudi investors a 30 per cent stake, or 201.4 million existing shares, at 10 riyals each, valuing the company at around $1.79 billion, according to lead manager and underwriter Albilad bank.

Subscriptions will close on June 18, Albilad said in a statement to Reuters.

The share price of 10 riyals is required by Saudi regulations for companies that are yet to start operations, so oversubscription rates are often the best measure of success.
Shares of so-called greenfield IPOs typically surge when they start trading.

The remaining 70 percent of Jabal Omar's stock is held by the owners of a 230,000 sq metres (275,100 sq yards) plot in Makkah, a two-minute walk from the Grand Mosque.

Jabal Omar is investing 10 billion riyals over seven years to build 40 towers housing hotels and apartments as well as shops and restaurants.

Makkah Construction and Development Co., the largest single shareholder in the project, expects the complex will be able to accommodate 100,000 people during the two seasons that most pilgrims visit Makkah.

'We hope the return on investment will reach 15 percent,' Makkah Construction's chairman, Abdul-Rahman Fakieh, said in an an interview published on Wednesday by al-Eqtisadiah newspaper.

'Jabal Omar is an exceptional investment opportunity. It will get exceptional demand,' said Abdulhamid al-Amri, a member of the Saudi Economic Association.

The real estate market in Saudi Arabia has been growing rapidly, drawing investment from record oil revenues and capital that fled the stock market when it crashed earlier this year, halving the value of the largest Arab bourse.

The bourse has been struggling to recover its poise since then and the main index is down around 7 percent in 2007, the only market in the world's top oil exporting region to be trading below its 2006 close.

The weakness of the stock market was not likely to discourage investors, said Mohamed al-Omran, head of the Gulf Center for Financial Consultancy. 'The size of the IPO is relatively small and Jabal Omar is investing in the most important real estate region in the world.' - Reuters