x Abu Dhabi, UAEWednesday 24 January 2018

Saudi cement squeeze makes IPOs look solid

What's Up: Najran Cement commenced its initial public offering on the Saudi Tadawul exchange yesterday. Analyst expect the share-sale to do well.

A labourer works at a construction site in Riyadh. Reuters/Fahad Shadeed
A labourer works at a construction site in Riyadh. Reuters/Fahad Shadeed

The gaze of many investors has become fixed on Saudi Arabia's cement stocks.

The kingdom is expected to suffer a shortage of 4 million tonnes of the commodity by next year, as demand balloons to 60 million tonnes in the same period, according to Ahmed Zaqeel, the chief executive of Najran Cement, the latest company to seek an initial public offering (IPO) amid a surge in sales on the back of increased infrastructure spending in the kingdom.

Najran Cement, which began its share sale yesterday, plans to offer 85 million shares at 10 Saudi riyals apiece. The sale ends on Sunday.

"Najran's stock should do well, because 10 riyals is quite cheap in terms of the business, and the cement market is doing very well," said Farouk Miah, an analyst at NCB Capital in Riyadh.

Cement companies are required to go public within five years from the start of production because they receive subsidies from the government.

Cement prices have surged from 225 riyals per tonne in 2010, to a high of 248 riyals last year after King Abdullah ordered authorities in March last year to build 500,000 low-cost houses in different parts of the kingdom.

The monarch has allocated 250 billion riyals to implement the project. Saudi Arabia is expected to need two million homes by 2014 to keep up with the demands of a population that has quadrupled in 40 years.

"The timing of the IPO is also very good for them because it comes at a time when equity prices in the sector have outperformed the overall market in the last 12 months," Mr Miah said.

Cement stocks have risen 13 per cent so far this year. Last year the sector offered a hedge for investors when markets roiled during the Arab Spring unrest in parts of the Middle East and North Africa.

"Saudi Arabia's cement sector is very defensive, high yielding and high growth, three very important factors we look at in our allocation in times of high volatility in the market," said Marwan Shurrab, the chief trader at Gulfmena Investments in Dubai.


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