Saudi Investors Turn Cold on IPOs Following Tough Year: IFR

For all the excitement surrounding Saudi Arabia's primary ECM market as 2025 began, the year has turned into something of a disappointment.

Of 13 main market IPOs to price on the Tadawul exchange and begin trading in 2025, just five traded up on debut, with three of these coming before the summer.

Of the successful debuts, only Umm Al Qura, Almasar Alshamil Education and Sport Clubs Company have remained above issue.

Some losses have been particularly pronounced. United Carton Industries is approaching the end of the year nearly 47% down on issue while Entaj and Marketing Home Group are both down around 34%.

Tadawul also had a rare cancellation this year when EFSIM Facilities Management abandoned a deal that had struggled to find domestic support despite regional and international interest and an attractive valuation.

In 2025, the Tadawul All-Shares Index hit lows not seen since 2023, largely driven by weak oil prices, but also thanks to regulatory changes such as the new "white tax" levied on undeveloped land that affected domestic family offices and asset managers, which often have high exposure to real estate.

Against that background, it is perhaps little surprise that CloudKitchens, which had been on course for a dual Saudi and UAE listing next year, is said to be delaying its plans following feedback in early-look meetings.

Goldman Sachs, JP Morgan and SNB capital are leading the deal, which was expected to value the PIF-backed business at up to US$2.5bn.

One consequence is that deal flow next year is expected to be slower than previously assumed, with bankers beginning to take a more cautious approach in bringing transactions to market. 

Next year will see a narrow window for listings in Q1 due to the timing of Ramadan, which begins around February 17. While market activity has increasingly continued during the first few weeks of Ramadan, any candidates will need to launch relatively promptly to be out in the market ahead of the final week and the beginning of Eid Al-Fitr holidays in mid-March.

One regional banker told IFR they were looking at two potential IPOs before Eid, with one described as “market resistant”. Two other bankers said they would likely wait until after Eid to launch, allowing them to reassess markets and regulatory backdrop and use Q1 to carry out early-look work and derisk ahead of filing intention to float statements.

Retail spooked 

Throughout the ECM boom of recent years Saudi IPOs have been characterised by strong retail orders that have often been well in excess of the entire deal.

More recently that has completely reversed, however, with deals such as Al Ramz Real Estate and refrigeration business Consolidated Gruenenfelder Saady Holding failing even to cover their retail tranche.

Bankers in the region have frequently referenced the fast-money nature of retail in Saudi Arabia with individuals often quick to sell out of IPOs that do not perform well on debut and investors now appear to be increasingly cautious about even participating.

“Performance of Saudi markets has been poor and a lot is under water,” said the first banker. “Other markets are doing well. The US market is a lot more interesting for Saudi investors than the Saudi market and a lot of interest has gone overseas.”

For those still active in the Saudi market there is greater price sensitivity and a growing acceptance that a first-day pop on every trade is not guaranteed.  

“The more sophisticated [investors] are assessing for quality,” said a second regional banker. “We’re seeing a normalisation and people behaving as a rational investor would. 

They’re no longer putting crazy money in and hyperinflating orders. I think [demand] will go up next year but not up to the point where you can fill a deal on retail only.”

Alongside weakening sentiment, the country's Capital Market Authority appears to be encouraging larger retail tranches. Historically at 10% of deals, this year saw 20% emerge as the standard with tranches of 30% included more recently.

The CMA is said to be keen to broaden participation but this opportunity has yet to be seized on by locals, with Almasar Alshamil Education seeing its 30% retail offer subscribed just 1.2 times.

“Everyone has told the CMA 30% is too big,” said the first banker. “[The CMA] is very keen the market performs well and retail doesn’t suffer losses. The rules were made in a different market environment. The good thing is there are lots of levers [the CMA] can pull to help the market.”

The second banker said they were in discussions with one issuer over its retail tranche and pushing for 20% instead of 30%.

Market correction 

In addition to having to cater to larger retail tranches, issuers are required to allocate a portion of IPOs to local public funds, often around 30%, but demand from these funds is also waning.

“It’s become the norm to press ahead with limited demand from the asset management community,” said a third banker. “Just to meet that requirement these allocations get filled. Internationals and family offices typically come in once they sense healthy levels and that is starting to fade away.”

As with retail investors this is leading to increased selectivity and greater price sensitivity among institutions, with IPO discounts now trending towards 30% or more to fair value versus a more typical 10%–15% or in some cases even lower in recent years.

“It’s a healthy correction, I don’t think the price discovery process has been a true discovery process,” said the third banker. “Any asset would be covered, irrespective of quality. It’s taking us to the days [before the IPO of Saudi Aramco in 2019] when sales teams would sweat to get deals covered six to seven times. The market has evolved in terms of a de facto price-hot trend bringing in less sophisticated demand, which shouldn’t be used to price an IPO.”