Saudi family-owned companies, long resistant to opening their books to outside shareholders, are lining up to list stakes as the country’s stock market booms, sometimes in the hope that bringing in outside investors will help them weather internal disputes.
Almunajem, one of Saudi Arabia’s largest food companies, in December became one such company to list on the bourse, known as the Tadawul, while the exchange was on a multiyear high. The Riyadh-headquartered group offered a 30 per cent stake which raised around $300m.
“It’s a very good move, at least to institutionalise the business from a governance and continuity perspective,” said chief executive Thamer Abanumay, a non-family member. The move should also help the company to “diversify our capital for growth”, he said.
Other family companies that listed last year include Theeb Rent a Car and Alkhorayef Water and Power Technologies. Nahdi Medical, the country’s largest pharmacy chain, has received regulatory approval to float shares.
Saudi Arabia has long been keen to boost its capital market as it seeks to diversify its oil reliant economy. In 2019, the government listed 1.7 per cent of state oil company Saudi Aramco raising $29.4bn in a blockbuster IPO. Yet going public has been treated with reluctance by many family-run companies wary of opening their books or answering to external shareholders, even though remaining private ran a greater risk of infighting — and in some cases even collapse — as new generations inherit businesses.
However the pandemic, which caused the Gulf kingdom’s economy to shrink by about 4 per cent in 2020 and heaped further pressure on companies that had been struggling with rising costs and subdued growth in recent years, prompted some to rethink their strategies said officials and analysts.
The economy bounced back in 2021, with a projected growth of almost 3 per cent according to the latest budget. Meanwhile, a rebound in oil prices last year helped propel the Tadawul to a multiyear high of almost 12,000, a 30 per cent growth year on year, further enticing companies to sell stakes.
The pandemic reminded a lot of private businesses “that in order to remain sustainable in all circumstances, I need to have all available financing options — and I think it became fairly clear if you are listed you have more financing options than if you are not”, said Mohammed bin Abdullah Elkuwaiz, chair of the Capital Market Authority.
As well as bringing in cash and access to capital markets, floating shares also encourages new talent to join companies and puts the onus on them to develop good governance.
Elkuwaiz said he had heard stories of family businesses “that were thriving from an operational standpoint” but had become mired because of disputes. Opening themselves up to outside shareholders was one of “the benefits of being listed in the capital market”.
Saudi Arabia’s private sector “is driven by family businesses”, said Basil Ghalayini, chief executive of BMG Financial Group, that often had large numbers of siblings and relatives. “There [are] a lot of stories of big family businesses who basically collapsed over the last 10 years, and they had hired hundreds or thousands of employees,” he said.
Munajem has gone against the grain of its peers and has been hiring external chief executives for a decade.
Last year, 15 companies listed on Tadawul or its secondary market Nomu, which has less stringent requirements to encourage smaller businesses, according to the CMA. This compared with eight in 2020, and Elkuwaiz added that dozens more were in the pipeline, of which some were family businesses.
The CMA’s list of requirements and disclosures for prospective floats includes some that family owners are unaccustomed to, such as the stipulation that they announce any action that could affect their share price.
Some that have listed have privately expressed regrets about the greater scrutiny to which they are now subjected said Ahmed BinDawood, chief executive of BinDawood Holding, one of Saudi Arabia’s biggest retailers. It floated a 20 per cent stake in late 2020, raising about $585m.
“They say it’s a nightmare and [would] prefer to take the company back to being private again,” he said. “When we ask them why, they say you have lots of committees and there is the board and we have to explain. [Shareholders] challenge us with ideas . . . a guy with maybe 10 shares coming questioning why I’m taking this action.”
This is despite most families choosing to only list a stake and remaining the majority owners. The Saudi market was included in the MSCI Emerging Markets Index three years ago, bringing in billions of dollars of foreign investment. But Tarek Fadlallah, chief executive of Nomura Asset Management in the Middle East, said global active fund managers are still underweight in the market which is dominated by local investors.
More family-owned businesses are either taking the plunge or considering it, BinDawood added, saying he had been approached by more than a dozen such businesses asking for advice.
BinDawood does not regret going public and cited a study that he said showed only 14 per cent of family-owned businesses survived past the third generation. He added his father and uncles were willing to bring in outsiders “competent to handle the company” and to ensure good governance.
Private companies cannot afford bitter internal disputes. Many have struggled over the past five years with rising costs and in some cases being crowded out by state owned-entities, particularly the sovereign Public Investment Fund, and companies it controls.
“Covid did affect a lot of family businesses. Cash has shrunk. The best way to quickly access liquidity is to list, monetising shares,” said BinDawood.
The main incentive to list now comes from the strength of the market, said Fadlallah. “If you’re a company looking for a high valuation, this is an optimal opportunity,” he said.
A rash of non-family-owned companies are also planning to go public. Tadawul itself has announced plans to list, with the exchange targeting a valuation of more than $3bn.
Another is Jahez, a popular food delivery app, which will become the first Saudi tech start-up to do so in the region when it floats a 18 per cent stake on Nomu.
Chair Mishal Bin Sultan al-Saud said going public should make the company more attractive to top-tier hires. “It gives a new profile, a new edge, a new image to your company . . . and it results in being a talent magnet,” he said, adding it would bring more “transparency and corporate governance”.
Additional reporting by Andrew England