Saudi asset management industry resilient in 2021: KPMG

RIYADH: Saudi Arabia’s asset management industry looks resilient in 2021, according to global audit, tax and advisory firm KPMG, with official stock market listings and the increased presence of foreign investors set to be the major trends this year.

According to KPMG’s analysis, Saudi asset management firms managed SR471 billion ($125.6 billion) of assets under management as of the end of September 2020, up 14 percent compared to the end of 2019.

“A resilient asset management industry has withstood the two-fold challenges posed by the decline in oil prices and the COVID-19 pandemic, whereby investor redemptions have been limited and asset prices have either been stable or have rebounded,” said Ovais Shahab, head of financial services at KPMG in Saudi Arabia.

“The industry is well prepared to play a pivotal role in providing the necessary impetus to the overall economic recovery.”

KPMG believes that the inclusion of Saudi equities in global indices such as MSCI and FTSE in mid-2019, coupled with Saudi Aramco’s initial public offering (IPO) on the Saudi Stock Exchange (Tadawul) in 2019, profoundly impacted global and local investor sentiments.

The consultancy firm noted that the entertainment, travel, hospitality and high street retail sectors faced the biggest challenges from the lockdown restrictions on operations.

“We expect some of the smaller players within these sectors to either exit the market as it may no longer be viable for them to remain in business, or be up for acquisition / consolidation / part sale by the larger companies operating in the respective sector,” Shahab said.

“Distressed assets may also be available, albeit on a selective basis, in the form of real estate, whereby valuations may have declined in certain geographic locations that had increased reliance on the sectors impacted most by the pandemic.”

Qualified foreign investors were net purchasers of SR18.75 billion worth of stocks on Tadawul last year.

While this was down 79 percent year-on-year, according to Argaam, citing data from the Saudi bourse, KPMG is confident that 2021 will see a return of foreign appetite.

“This is absolutely the case. The capital market reforms spearheaded by the CMA (Capital Market Authority) are creating the ecosystem needed to attract and retain foreign capital,” said Shahab.

“We therefore expect the scale of foreign investment to increase going forward, especially when the market is bullish and still generating favorable results.”

Kuwait-based KAMCO Investment Co. last month issued a report concluding that Saudi Arabia is set to lead the regional IPO market in 2021, with authorities believed to be viewing over 15 potential listing applications.

The report said the Kingdom “continued to provide leadership for primary markets in 2020,” as four of the seven IPOs in the region were on Tadawul.

Saudi Arabia also dominated in terms of IPO proceeds generated, accounting for 78 percent — or $1.45 billion — of issuance.

The report said the Kingdom’s healthcare operator Dr. Sulaiman Al-Habib Medical Services had the largest IPO in the region in 2020, with proceeds of $698.6 million. Saudi retailer Bin Dawood Holding came next with proceeds of $585.1 million.

Globally, IPO volumes grew 15 percent year-on-year in 2020 to reach 1,322 issuances. Proceeds rose 26 percent to $263 billion over the same period, the highest level since 2010 and driven mainly by a 69 percent year-on-year surge in issuances in the US. China saw a 41 percent increase in the number of issuances.

Speaking at a webinar organized by Bloomberg in December, Ammar Al-Khudairy, chairman of Samba Financial Group, said: “A nice number (a dozen or so) of IPOs are coming up in 2021.”

Shahab agrees with this positive sentiment toward the IPO market in 2021 for three main reasons.

Firstly, he believes there is “pent-up demand” for IPOs, given that several companies had planned for an IPO in 2020 but had to revisit their plans in light of the pandemic, and may well be revitalizing them in 2021.

Secondly, he said companies in some sectors in Saudi Arabia are primed to go for an IPO. He cited non-banking financing industry companies that are exploring an IPO in order to diversify their source of funding to better compete in a crowded market dominated by banks.

Lastly, he pointed to the drive toward privatizations. The National Center for Privatization (NCP) raised SR3 billion in revenue from the sale of state assets last year.

This is expected to rise to approximately SR15 billion or more in 2021, NCP CEO Rayyan Nagadi said in January. Shahab said: “IPOs present a viable avenue to achieve this.”