riyadh: Plans by Saudi Arabia’s biggest bank for a $6bn initial public offer of shares, the largest-ever equity sale in the Arab world, have run into religious controversy with some clerics suggesting it violates Islamic principles. Securities analysts said the controversy was unlikely to sway enough investors to derail the IPO of state-owned National Commercial Bank, which is due to start next week.
“The conflict between religion and the economy in the kingdom has been negative for a long time, but this will not stop ordinary citizens from participating in the IPO,” said Mazen al-Sudairi, head of research at al Istithmar Capital in Riyadh. “It contributes 16 percent of lending activity in the country and it has SR435bn ($116bn) of assets and SR345bn of deposits...Bank depositors alone could be enough to cover the IPO several times.”
Nevertheless, the controversy underlines how Saudi Arabia’s conservative brand of Islam can complicate economic decision-making in the kingdom, which is due to open its $550bn stock market to direct foreign investment early next year.
Sheikh Abdullah Al Mutlaq, a member of the Council of Senior Scholars, Saudi Arabia’s highest religious body, told state-owned television this week that subscribing to the IPO was not permissible. In response to a viewer’s question about the share offer, Mutlaq said the bank had too many dealings forbidden by Islamic principles on its balance sheet.
Some other clerics have reached similar conclusions. Another member of the Council of Senior Scholars, Sheikh Saad Al Khathlan, said the IPO prospectus showed NCB had a high proportion of loans based on interest payments, which are banned by Islam. Not all clerics are so negative, however. A former imam of the Holy Mosque in Makkah, Sheikh Adel Al Kalbani, said on Twitter that NCB was similar to Al Rajhi Bank, a major Islamic bank that has already listed successfully on the stock market. “Poor citizens, they don’t know what to do — if they subscribe, they are told they don’t have faith, and if they do not, they are not patriotic...
“The reality is that Rajhi is the same as NCB, but the former has a beard and the latter does not,” he added in reference to Al Rajhi Bank’s Islamic image.
The bank said in a statement on Monday that eight banks had completed all necessary procedures to go ahead with receiving subscriptions to the IPO, which is expected to be the world’s second largest this year. The statement quoted NCB’s chairman Mansour Al Maiman as saying the bank had “clear and sound” strategic plans for coming years. The IPO will “play an important and influential role in the national economy, and boost the confidence of those who trade in the Saudi stock market, as it will allow additional investment opportunities for Saudi nationals...” he said.
IPOs in Saudi Arabia are generally priced low enough to allow a substantial surge in the stock price after listing, often 50 percent or more; analysts believe Saudi authorities try to use IPOs to distribute some of the kingdom’s corporate wealth among its citizens. “The price is valued lower than other banks,” Turki Fadaak, head of research at Al Bilad Investment, said of NCB’s 45 riyal per share offer price.
Reuters
