NEOM’s IPO plans welcomed by global wealth funds

Supplied: Tadawul

• Appetite growing for Saudi projects among sovereign wealth funds
• New listing will help deepen the Middle East institutional market

The Saudi Exchange inched upwards in trading today, following positive reaction to plans by the crown prince to list all companies linked to the sovereign wealth fund in the coming years, part of a wider strategy to turn Tadawul into one of the top stock markets in the world.

Saudi crown prince Mohammed bin Salman announced yesterday plans to list NEOM, its 1.2 trillion riyal ($320 billion) futuristic megacity, by 2024. He said this was part of wider plans to list all companies backed by the Public Investment Fund (PIF).

“We have big aims to get Saudi Arabia among the top three largest stock markets on the planet,” crown prince Mohammed bin Salman told reporters during a press briefing at which he also unveiled designs for The Line, a “vertical city” to be built at NEOM.

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“NEOM will add a trillion riyals ($266 billion) to the Saudi stock market value. At least 1.2 trillion riyals in the beginning and the overall will increase after project completion to exceed 5 trillion,” Al-Ekhbariya TV reported Prince Mohammed as saying.

In trading on Tuesday, Saudi Arabia’s benchmark index gained 0.8 percent, with Banque Saudi Fransi advancing two percent and Arab National Bank putting on 1.7 percent.

Growing sovereign demand

Rod Ringrow, London-based head of official institutions at US-headquartered global investment firm Invesco, told AGBI the move was greeted positively by the investment community, especially other global sovereign wealth funds (SWFs).

“I think those long-term investment opportunities could very well find interesting demand from the global sovereign wealth fund community,” he said.

The latest Invesco Global Sovereign Asset Management Study, published last week, surveyed 139 chief investment officers, heads of asset classes and senior portfolio strategists at 81 sovereign wealth funds and 58 central banks across the globe, who together manage $23 trillion in assets.

While the survey found that just eight percent of global funds were planning to increase their exposure to the Middle East this year, appetite among regional SWFs for local projects was growing, even before the NEOM announcement.

This year, 40 percent of Middle Eastern SWFs surveyed said they plan to increase their exposure in their home market, compared to 13 percent who said the same in 2021.

“My own view is that anything that is done to deepen the institutional market in the Middle East is in the long-term very beneficial,” Ringrow believed.

Rachel Ziemba, founder of New York-based geo-economic advisory firm Ziemba Insights, was more hesitant and said it was too soon to determine the impact a raft of new PIF-backed IPOs would have on the Tadawul stock exchange.

“At present, it remains unclear whether there is sufficient demand for these listings, especially given the relatively limited liquidity on the local market.

“Much depends on the terms. I’d be watching whether there are large anchor buyers (sovereign funds from Asia or other institutional investors) or whether it is primarily a local audience,” she said.

Family offices look east

The NEOM announcement comes just days after a senior executive at the Swiss global wealth manager UBS forecast that investments in the Middle East by ultra-high-net-worth family offices would increase by at least 50 percent over the next decade, with Saudi Arabia set to be a key recipient.

The UBS Global Family Office Report 2022, which surveyed 221 global family offices that collectively oversee wealth of $493 billion and have average assets under management of $2.2 billion, found that the Middle East accounts for just 4 percent of asset allocations.

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Josef Stadler, executive vice chairman of UBS Global Wealth Management, who manages some of the bank’s wealthiest clients, said this was down to a lack of opportunities, but the announcement of projects such as NEOM was going to change this trend.

“I think that four percent [of global allocation] will go up and it’ll take about 10 years to get there,” he predicted.

“Family offices see Saudi Arabia as an attractive place to invest. It’s growing, it’s opening up, it has massive potential,” he said.

Cornelia Meyer, CEO of Meyer Resources and chief economist at the European Family Office Alliance, a group representing over 200 wealthy family offices in 17 countries, agreed with Stadler’s assessment and said she believed the flurry of more PIF-backed Saudi listings will mean the Tadawul is “doubtlessly set to gain in importance”.

She added: “KSA is the GCC’s largest economy boasting the region’s largest young population. This explains why the Crown Prince is on to something when he banks on foreign investors, their vision and their technologies to contribute to NEOM as well as to Vision 2030 as a whole.”

The Crown Prince, who is also chairman of the NEOM board of directors, used Monday’s press conference to release new designs for The Line, a high-tech city within NEOM that will run on 100 percent renewable energy.

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Ambitious plans

The Line, which was announced last year, will be 200 metres wide, 170 kilometres long and 500 meters above sea level. The aim is that all nine million residents will be able to access all the facilities they need within a five-minute walk. High-speed transport will take residents from one end of the development to the other in 20 minutes.

Ali Shihabi, a retired banker who worked for Saudi Hollandi Bank, Rasmala Investment Bank and the Saudi central bank, and is now a member of the advisory board at NEOM, praised the ‘outlandish’ ambition of the futuristic project.

“The Line is the result of a huge amount of creative architectural design work into the future of sustainable urban living in the Arabian Peninsula,” he said in an online post.

“What seems outlandish now is actually a product of the best global minds in design/engineering that looked at the challenges of water, sandstorms, excessive heat/global warming and the unsustainable cost of maintaining the current urban sprawls in the Arabian Peninsula.”