Business circles are expected to be dominated this year by the initial public offering (IPO) of 15 percent of the Kingdom’s oldest and biggest financial institution, the National Commercial Bank (NCB). In fact, given the NCB’s strong position in the Saudi banking landscape, the IPO will attract regional and international attention.
It not only provides a big business and investment opportunity, but adds to the overall transparency trend approach that will help consolidate business confidence, which in itself will have many indirect impacts in various areas such as consumers’ confidence.
As a listed company, with a SR20 billion paid-up capital of NCB will be required to improve its reporting standards and disclose its financial results every quarter.
But more importantly, the IPO will help expand the base of shareholders at grassroots level and add new beneficiaries to the country’s wealth.
With assets exceeding $100 billion and a net profit of more than $2 billion, and significant market share, it accounts for some 16 percent of the total banking lending in the Kingdom, which will add a new constituency of interested shareholders at grassroots and help in trickling wealth down to people.
That trend will be strengthened with the additional 10 percent to be offered to the Public Pension Fund, which provides a good investment opportunity to the pension’s portfolio.
The move is orchestrated by the Public Investment Fund (PIF), a government sovereign fund, and it confirms the Kingdom’s strategic decision to stick to investment inside the country as much as possible and not get into foreign ventures as many sovereign funds in other countries do.
By offering 10 percent of its lucrative shares to the pensions, the policy maker is sending a clear message where its interest lies. Pensioners are part and parcel of the main constituency that should be cared for. And the move should be a welcome step in the difficult economic environment.
With the continuation of oil prices at the current and expected high levels ,and the continuation of the government to spend in various fields from services to infrastructure, banks are expected to have bumper years of activity, and NCB as one of the leading fiscal institutions is expected to be a leading player in this respect.
Though some financial analysts expect that IPO will suck a good portion of the country’s liquidity initially, that will have a long-term positive impact as it helps in the general capitalization in the stock market and improve the trend on institutionalization that will have clear regulatory and accountability procedures.
The PIF move is adding to a well-established policy followed by the Kingdom to either create institutions or enter into existing ones, overhaul them and offer them to the public. This helps expand the shareholders’ base and beneficiaries at grassroots level.
NCB is a brand name with long history as a family business when it was established back in 1952, but over time and due to various developments PIF got into a deal whereby it acquired some 69 percent of the bank’s shares.
Though NCB’s IPO looks initially of interest only to banking and various investment circles, the big picture points to the two main issues of the economic policy adopted by the Kingdom, and how to help grassroots taste the dividends of the economic development and have a stake in the country’s wealth.
For a long time, the world was dominated by two politico-economic theories: the free market economy and the controlled one driven by the two rival camps led by the US and then the Soviet Union. However, the collapse of the Soviet Union took with it the glamor of the controlled economy, though the shortcomings of the complete free market became very clear with the widening gap between the rich and poor.
Though the Kingdom has been practicing free market policies in running the economy in various fields, in effect it has been adopting a hybrid policy of having a strong state presence as well as allowing a room for the private sector.
That could be attributed to the fact that the Kingdom is still regarded a developing country, where the state can play a role to further process and help distribute wealth at lower and wider beneficiaries’ base. The NCB IPO will add to this approach.