saudi arabia’s capital markets · page 5 the changing landscape: saudi arabia’s capital markets...

The changing landscape

Saudi Arabia’s capital markets

Q2 2017

Table of contents01 The macroeconomic perspective 03

02 Regulatory developments in the capital markets 09

03 M&A activity 17

04 Capital markets performance snapshot 22

06 IPO trend analysis — Tadawul main market 31

08 REITs market 50

10 Mutual funds and ETFs 63

11 Abbreviations and glossary 72

09 Nomu market 55

07 Sukuk market 45

05 Equity market trends — Tadawul main market 25

Section

The macroeconomic perspective

01

The changing landscape: Saudi Arabia’s capital markets

Capital market performance is directly correlated with oil prices, as reflected in the Tadawul All Share Index (TASI) growth during the period 2012–1H17

Brent crude oil spot price growth, nominal gross domestic product

(GDP), oil GDP and non-oil GDP growth (2012–16)

TASI growth, domestic demand and industrial growth (2012–16)

Economic growth slowed in the first half of 2017, weighed down by the cumulative impact of

Government spending cuts and lower oil prices.

Declining economic growth has adversely affected the capital market since 2014, with the TASI

posting a negative growth of –17.1% in 2015. With economic measures, the TASI has seemed

to stabilize in the last two periods.

2012 2013 2014 2015 2016 1H17

Brent crude oil spot

price growth

9.6% 1.5% 1.3% –13.8% –1.9% –14.0%

2012 2013 2014 2015 2016 1H17

TASI growth 6.0% 25.5% –2.4% –17.1% 4.3% 3.0%

552 589

657 687 639

4.3%

5.2%

6.3%

4.5%

(1.0%) (2.0%)

0.0%

2.0%

4.0%

6.0%

8.0%

0

200

400

600

800

2012 2013 2014 2015 2016

Industria

l gro

wth

(perc

enta

ge)

Dom

estic d

em

an

d (

US

$b)

Domestic demand Industrial growth

736 747

756

652 640

7.8%

–6.3% –7.3%

–46.0%

–9.9%

11.3%9.3% 8.6% 9.4%

1.3%

–50.0%

–40.0%

–30.0%

–20.0%

–10.0%

0.0%

10.0%

20.0%

560

600

640

680

720

760

800

2012 2013 2014 2015 2016

Oil G

DP

and n

on

-oil G

DP

gro

wth

Nom

inal

GD

P (

US

$b)

Nominal GDP Oil GDP growth Non-oil GDP growth

Source: Oxford Economics, S&P Capital IQ, EY analysis


Falling investments and a rise in the interest rate are expected to tighten liquidity and put pressure on the capital market in the near future

Investment growth (2012–16) Saudi Arabian Monetary Authority (SAMA) bills and Saudi Arabia

Interbank Offered Rate (SAIBOR)

Saudi Arabia enjoyed a steady growth in investments, with a compound annual growth rate

(CAGR) of 6% from 2012–15. Persistent low oil prices and the current economic outlook led to a

—17.3% fall in investments through 2016 year-on-year (y-o-y).

In 2016, lending rates increased to 2.3% from 1.09% in 2015 owing to a rise in Federal Reserve

interest rates. Rising interest rates have led to a fall in money supply (decreased by 0.2% in

2016 to US$305b), thereby adversely impacting the capital market outlook. So far, 2017 has

shown a stable outlook.

2012 2013 2014 2015 2016

Investment growth 8.1% 7.7% 7.8% 2.4% –17.3%

164 177

190 195

161

12

9

8 87

0

3

6

9

12

15

0

50

100

150

200

250

2012 2013 2014 2015 2016

Inw

ard

fore

ign d

irect in

vestm

en

t (US

$b)

Inve

stm

ent

(US

$b)

Investment FDI (Inward)

1.15%

1.74%

1.39%

0.60%

1.00%

1.40%

1.80%

Jul 16

Au

g 1

6

Se

p 1

6

Oct 1

6

No

v 1

6

De

c 1

6

Jan

17

Fe

b 1

7

Mar

17

Ap

r 1

7

May 1

7

Jun

17

SA

MA

bill

s (

52 w

eek

perc

enta

ge)

1.11% 1.09% 1.07% 1.09%

2.30%

1.75%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

201

2

201

3

201

4

201

5

201

6

1H

17

SA

IBO

R

Source: Oxford Economics, SAMA, EY analysis


The economic impact of low oil prices triggered Government measures to control the economic slowdown and stabilize the capital market

108.9

47.1

0.0

40.0

80.0

120.0

Fe

b 1

4

Ap

r 1

4

Jun

14

Au

g 1

4

Oct 1

4

De

c 1

4

Fe

b 1

5

Ap

r 1

5

Jun

15

Au

g 1

5

Oct 1

5

De

c 1

5

Fe

b 1

6

Ap

r 1

6

Jun

16

Au

g 1

6

Oct 1

6

De

c 1

6

Fe

b 1

7

Ap

r 1

7

Jun

17

Brent crude oil spot price (US$ per barrel)

2014 2015 2016 1H17

Reserves, foreign exchange, US$b 719 603 526 500

The Government funded the deficit by drawing on its reserves and

central bank deposits.

► Of the Saudi Arabian Government’s revenues, 86% is derived from oil. Therefore, low oil prices led to a decline in government expenditure and the gross fixed capital

formation (GFCF), and consequently had a strong impact on the capital market.

► In order to combat the impact of declining GFCF, the Saudi Arabian Government resorted to using the large foreign reserves of SAR2.6t (US$603b) held by the SAMA,

which provided the required financial cushion for the Government to prevent further decline in the markets, and push economic growth. Furthermore, there was plenty of

room for the Government to raise debt, given its strong credit ratings and record low debt levels, which caused the markets to stabilize from January 2016 onward. In

2016, The Government also cut domestic funding for infrastructure and perks to civil servants, consequently the fiscal deficit of Saudi Arabia came down from US$98b to

US$79b in 2016, with positive signs of economic recovery.

Summary

Since around 86% of Government revenues are derived from oil revenues, a

prolonged period of lower prices impacted Government expenditure, creating a

deficit of US$98b in 2015.

9,106.66,863.6

0.0

4,000.0

8,000.0

12,000.0

Fe

b 1

4

Ap

r 1

4

Jun

14

Au

g 1

4

Oct 1

4

De

c 1

4

Fe

b 1

5

Ap

r 1

5

Jun

15

Au

g 1

5

Oct 1

5

De

c 1

5

Fe

b 1

6

Ap

r 1

6

Jun

16

Au

g 1

6

Oct 1

6

De

c 1

6

Fe

b 1

7

Ap

r 1

7

Jun

17

TASI index value

Source: SAMA, EIA, news articles, Trading economics, EY analysis


Privatization of major sectors, focus on small- and medium-sized enterprises (SMEs) and encouraging foreign investment are few significant measures as part of the Government’s Vision 2030 agenda to reduce Saudi Arabia’s dependence on oil

Saudi

Aramco

Vision

2030

Privatization

SMEs to gain more leverage in line with

Vision 2030

► Vision 2030 has a clear focus on the private

sector to develop and diversify the

economy.

► The Government has formed a public

authority for SMEs to regulate the sector,

facilitate funding and create jobs.

► SME contribution to GDP is expected to

increase by four times.

Listing of Tadawul likely

to improve Saudi Arabia’s finances

► Tadawul announced plans to go public in 2018.

► It is the largest stock market in the Middle East

region, with a market cap of US$306b.

► The Capital Market Authority (CMA) estimates listed

companies to increase from 175 to 250 by 2020.

Saudi Aramco proposed stake sale to

provide relief against falling oil revenues

► Saudi Arabia announced desire to IPO Saudi

Aramco.

Budget (2017) to impose taxes; industrial

energy and mining sectors to gain

importance

► The 2017 budget deficit is expected to be 33%

lower than that in 2016. The deficit is expected to

be reduce by debt and drawing from reserves.

► Other key budget features include:

► Introduction of a minimum expatriate fee

► Imposition of selective taxes on tobacco, soft

drinks and energy drinks

Saudi Arabia’s US$17.5b bond sale

expected to stabilize state finances

► Saudi Arabia issued the largest emerging

market bond sale of US$17.5b in October

2016.

► The huge demand for Saudi debt was

partly due to low global interest rates and

funds’ frustration with a lack of high-

yielding assets globally.

► This reassures investors that the country

could diversify its revenues and stabilize

state finances.

Saudi Arabia to launch privatization

drive as part of wider economic reforms

► There are plans to privatize major sectors such as health care, energy, airports, education and

renewable energy.

► Health care remains the top priority for privatization, with private sector health contribution to rise to

35% by 2020 from 25% in 2015, taking the number of licensed medical facilities from 40 to 100.Source: Public sources, news articles


Global events that impacted the Saudi capital markets

Source: Public sources, news articles

Rise in US

interest ratesBetter trade

ties

post-Brexit

Lifting of Iran

sanctions/

Qatar

embargo

Saudi-

Russia

extends

production

cuts

► The US Federal Reserve raised interest

rates to 1% to 1.25% range in June 2017.

A further increase in 2017 is predicted.

► The rise in US interest rates would result in

capital outflow, as investors from emerging

economies seek higher returns in the largest

economy in the world.

► In order to keep the currency pegged at the

fixed rate, Saudi Arabia has to sell dollars.

However, Saudi Arabia’s dollar income and

dollar reserves has dropped significantly.

► Saudi Arabia made post-Brexit Britain its

“preferred partner” to help reshape its

economy after Theresa May’s visit to

Saudi Arabia in April 2017.

► Saudi Arabia is Britain’s largest trade partner

in the Middle East region, with an annual

trade worth US$8.2b a year. The fall in

sterling value post-Brexit led to cheaper

imports from the UK.

► Post-Brexit, trade relations and ties are

expected to strengthen as Britain and GCC

are working on a Free Trade Agreement that

could be signed with the UK.

► The Saudi-Russia consortium has agreed to

extend a deal to cut oil production through

March 2018, which was supposed to expire

in June 2017.

► The two countries have agreed to do their

best to achieve the desired goal of

stabilizing the market and reducing

commercial oil inventories to their five-year

average level.

► Saudi Arabia and Russia produce a

combined 20 million barrels of crude oil a

day — about one-fifth of global consumption.

► During Trump’s visit in May 2017, US

and Saudi Arabian companies signed

business deals worth tens of billions of

dollars.

► PIF and US private equity firm

Blackstone agreed to create a US$40b

infrastructure investment fund.

► Saudi Aramco signed 16 accords with 11

US companies valued at about US$50b.

► Lifting of Iran sanctions, which

would lead to an increase in

oil supply, is likely to lower oil

prices further. Although Saudi

Arabia was refusing

production cuts initially, they

have recently reduced

exports, which has slightly

pushed up oil prices.

► Saudi Arabia, the UAE, Bahrain and Egypt

has cut off ties with Qatar as the countries

allegedly accused Qatar of funding

terrorism.

► However, Qatar is finding ways to work

around the situation by trade tie ups with

other countries and increasing local

production.

US and Saudi

firms sign high-

value deals

Section

Regulatory developments in the capital markets

02


Tadawul aims to improve access to capital, relax regulations, and improve governance and transparency standards

► Alternative equity market

launched in February 2017,

with lighter listing

requirements compared with

the main market

► Minimum capital requirement

of SAR10m compared with

SAR100m in the main market

► Encourages SMEs and family

businesses to go public

► Nine companies currently

trading on the exchange

► Since inception the Saudi

Nomu market index declined

by 35% by the end of Q2

2017, highlighting volatility

driven by the nature and age

of the segment.

► An independent sector for

REITs on its current equity

market, where investors may

trade units of the fund via the

same mechanism used for

equities.

► There are four REITs

currently listed in

Tadawul: Riyad REIT fund,

which got listed in November

2016, was the first and

Taleem REIT Fund was the

latest, which got listed in

May 2017

► Qualified foreign investors

(QFIs) allowed to own direct

stake of slightly less than

10%, an increase from 5%

► Combined, all foreign

investors limited to owning

49% of any single institution

► To qualify as QFI, investor to

have a minimum of US$1b

assets under management

(AUMs) globally (instead of

US$5b)

► Retail and wholesale

businesses allowed 100%

foreign ownership

► Zakat or tax profile of listed

entities will be based on

actual ownership between

GCC and non-GCC persons

as at the date of fiscal year-

end, which will now include

the weight of listed shares.

► Previously, the percentage of

only original (founding)

shareholders’ ownership was

taken into account

► New regulations provide

shareholders and board

members with improved

rights, greater clarity and

more transparency as to their

respective roles and

responsibilities

► Published in mid-February

this year, they formally come

into effect on 22 April 2017

► The draft regulations on M&A

includes regulating mergers

through the general

assembly, offering proposals,

mandatory and permissive

offers and disclosure

requirements, as well as

demonstrating the timetables

of these transactions. It also

includes provisions on

Reverse Takeover and

Demergers.

Parallel market “Nomu” lists 9

companies

Tadawul lists real estate

investment trust (REIT) funds

Exchange allows foreign

investment

Listed shares considered for

tax profile

CMA approves new corporate

governance regulations for

joint stock companies (JSCs),

also announces plans for

updating M&A regulations

► Move to T+2 settlement cycle

from T+0 is expected to

increase liquidity in the

market

► Introduction of new tradable

rights to improve products

and services, and diversify

investment channels

► Introduction of securities

lending and covered short

selling by the CMA. Short

selling allows investors to

make gains in a declining

market

► The independent custody

model, along with the T+2

settlement cycle, expected to

provide custodians with the

ability to match client

instructions against the

broker and only settle the

ones that clients have

instructed.

CMA makes amendments

to strengthen capital market

and be in line with global

standards



The publication of the new corporate governance regulations is driven by the continued effort to attract additional foreign investment into Saudi Arabia and bring in standards in line with other leading global exchanges


01

04

0203

05

06

0708

Key objectives of the new corporate governance regulations include

1. Enhancing shareholder rights

2. Clarifying board, committee and executive management roles and responsibilities, including their decision-

making mechanisms

3. Achieving greater openness, competitiveness, transparency and disclosure

4. Avoiding and disclosing conflicts of interest

5. Improving accountability and control over employees

6. Protecting shareholder rights

7. Overseeing corporate actions

8. Raising the professional standards of listed JSCs


Move from T+0 to T+2 settlement cycle is in line with rules adopted by some of the regional regulators and global best practice

Introduction

to the change

from T+0 to T+2

settlement cycle

in Tadawul

T+0 settlement cycle: same day as transaction

► The transaction date and settlement date (the

date on which a purchaser pays the seller for

securities) occur on the same day.

What was the need for the shift to T+2?

► The principal drawback was that it required

purchasers to fund fully any trade they intend to

carry out on the transaction date, which

reduces market liquidity.

► QFIs faced the issue on funding commitments,

especially where such trades take place on a

Sunday, which is a business day in Saudi

Arabia, but not in many Western jurisdictions

where QFIs are likely to be based.

T+2 settlement cycle: two days after the

transaction date

► Settlement will take place two days after the

transaction date; however, this should have no

impact to traders on Tadawul.

► Buyers can sell securities directly upon

executing transactions, with no need to wait for

completing the settlement of securities.

► Sellers gain purchasing power, which enables

them to buy new securities directly upon

executing transactions without having to wait for

completing the settlement of securities.

► The new settlement cycle will apply to

transactions of securities of all types listed in

the market ― stocks, sukuk, bonds, exchange

traded funds (ETFs) and tradable rights, in

addition to over-the-counter (OTC) transactions.

Source: Tadawul, news articles


T+2 settlement cycle is expected to increase liquidity and asset safety in the Saudi Arabian capital markets

Best practice

1

2

3

4

5

Advantages

(T+2 settlement)

Aligning the Saudi stock

market with leading global

settlement practices, which

will open up new listing

opportunities for the Saudi

market among other global

market indices

Asset safety

Increasing levels of asset

safety for investors, and

providing enough time to

verify transactions and deal

with errors, should they

occur

Short selling

Allowing short selling on

condition of borrowing

equities

Activate dealer role

Activating the role of the

market makers in the stock

market

Promote QFI investment

Developing an investment

environment that promotes

institutional-level

investments and meets

necessary requirements for

coping with any future

changes


Recent introduction of T+2 is expected to provide custodians with the ability to match client instructions against the broker, and only settle the ones that clients have instructed

Independent custody model: overview Independent custody model: structure

Independent custody model was introduced in 2015:

► Benefit: enabled foreign investors to appoint a global or local custodian

bank to hold their assets in Saudi Arabia instead of relying on a local

broker

► Challenge: trades needed to be pre-funded, as the market operated on a

T+0 settlement time, which increases counterparty risk and makes

correcting trading errors difficult

Introduction of T+2 in 2017:

► This provides custodians with the ability to match client instructions

against the broker, and only settle the ones that clients have instructed.

► Enhancements to the Independent custody model will also enable

custodians to reject the settlement of unconfirmed trades executed by the

executing brokers.

► The new Tadawul Trading Procedures require exchange members

(brokers) to be custody members.

Execution broker

(trading)

Independent

custody member

Settlement member

Saudi Arabian Riyal Interbank Express (SARIE) —

payment settlement (cash settlement)

Tadawul

The exchange

(trading)

Securities

Depository Center

(SDC)

(cash netting,

securities

settlement)

Transaction executed within

Tadawul

Transaction executed

within TadawulSource: Tadawul, news articles


CMA has developed a mechanism of trading rights to diversify and expand available investment channels

What is a

tradable right?

► Tradable rights are tradable

securities that entitle right

holders to subscribe to new

shares offered during a

capital increase.

► All shareholders registered

in the company’s records at

the end of the extraordinary

general meeting (EGM) are

entitled to tradable rights.

► The EGM is convened for

voting on the decision of the

capital increase (registered

shareholders). Each right

grants its holder the

eligibility to subscribe to a

new share at the offering

price.

Summary of

new trading framework

Introducing live subscription feature

► Investors can subscribe immediately

after the settlement of bought rights.

Allocating one subscription period

for all investors

► All investors can subscribe in one

phase instead of two separated

phases.

► The entire tradable rights

process (starting from the EGM

date until allocation) will be

shortened to a maximum of

28 days instead of 34 days.

► Similar to the buy/sell

mechanism of shares, all

investors may subscribe to rights

through the trading platform. This will be

in addition to any other subscription

channel provided by the broker.

Shortening periods of tradable rightsSubscribing through the trading

platform

1. 2.

4.3.Source: Tadawul, news articles


Short selling allows investors to make gains in a declining market and/or offers the option to hedge

The CMA’s recent announcement also relates to the introduction of securities lending and covered short selling. Both these decisions go

hand in hand, since short selling is usually executed by borrowing and then selling the borrowed security with the intention of buying it

back later at a lower price.

Source: Tadawul, news articles

* A real human being as opposed to a corporation, which is often treated by law as a fictitious person.

Short selling

► Covered short selling is allowed for investors other than natural persons.* However, investors have to borrow securities and have them

settled on their account before selling short.

► Short selling could only be conducted from specially designated accounts — short-selling accounts

Securities borrowing and lending (SBL)

► SBL activities are handled completely bilaterally, while the SDC only facilitates a free-of-payment (FOP) transfer of securities based on instruction from

counterparties.

► SBL transactions originate outside of the exchange, and negotiations take place bilaterally. However, the SDC provides a Tadwulaty platform that allows initiation

of a request for interest for borrowing and lending securities.

► There are two types of SBL transactions ― fixed-term and open-ended.

Section

M&A activity

03


Low oil prices and global slowdown has impacted the M&A activity in Saudi Arabia both in terms of value and volume during 2014–16; however, 1H17 showed significant improvement in the M&A activity, especially in terms of value raised

Saudi Arabia M&A activity (2012–1H17)

1,801

3,233 3,438

4,344

1,572 1,501

1,300

1,000

1,746

3,500

9,215

48

71 72

66

63

24

0

10

20

30

40

50

60

70

80

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015 2016 1H17

Num

ber o

f deals

(volu

me)

Deal

valu

e (

US

$m

)

Deal value (US$m) Deals greater than US$1b Number of deals

Aramco invested in

Lanxess (Germany)

PIF invested in Uber

Mosaic and SABIC acquire

40% concession rights in

Al Khabra and Umm Wu’al

from Ma’aden

► Value of disclosed deals,

excluding the PIF and Uber deal,

has come down in 2016 compared

with the past five years

Source: Mergermarket, ThomsonOne, Capital IQ, EY analysis

Note: both completed and announced deals have been considered in the analysis; transactions that are less than US$5m and 5% stake have not be considered in our analysis; deals with disclosed values are only considered for analysis based

on value; all disclosed deals with value more than US$1b have been included separately to show the impact of the deal in the overall trend.

► Aramco agrees

to buy RAPID

project for

US$7b

► Tronox (US)

agrees to buy

National

Titanium

Dioxide for

~US$2.2b

Bahri merger with Vela

(Aramco subsidiary)


2,1261,870

2,127

751 685

4,564

9,136

1,709

155

5,430

1,047

1,440

1,609

48 48

3230 30

2120

18 1816

1210

41

0

10

20

30

40

50

60

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Consumerproducts

Diversifiedindustrialproducts

Real estateand hospitality

Providercare

Professionalfirms

and services

Technology Oil and gas Construction Powerand utilities

Chemicals Metalsand mining

Othertransportation

Other sectors

Num

ber o

f deals

Deal

valu

e (

US

$m

)

Deal value (US$m) Number of deals

The consumer products, diversified industrial products, and real estate and hospitality sectors were the most active sectors, contributing to ~40% of the total deal volume between 2012 and 1H17 in Saudi Arabia

Saudi Arabia M&A activity by top sectors* — value and volume (2012–1H17)

► Top five sectors by volume* form

55% of the total number of deals

during 2012–1H17

► Top 10 sectors by volume* forms

82% of the total number of deals

during 2012–1H17

Source: Mergermarket, ThomsonOne, Capital IQ, EY analysis

* Top sectors include top 10 by value or volume during the period; rest of the sectors are classified as “other sectors,” which includes agriculture; aerospace and defense; asset management; automotive; banking and capital markets; insurance;

media and entertainment; and telecommunications (volume indicates number of transactions).

Includes US$7b

investment of Saudi

Aramco in RAPID

project (Malaysia)


Both M&A and IPO activity have declined during the economic slowdown in Saudi Arabia; however, M&A activity is still largely active, with investors looking to capitalize on the opportunities or consolidate business to stay relevant in the market

Saudi Arabian M&A vs. IPO activity — comparison of number of M&A deals vs. number of IPOs

48

71 72

6663

24

7

5

6

4

3

0 0

1

2

3

4

5

6

7

8

0

10

20

30

40

50

60

70

80

2012 2013 2014 2015 2016 1H17

Num

ber o

f IPO

sN

um

ber

of

M&

A d

eals

Number of M&A deals Number of IPOs

Continual decline in M&A and IPO

activity in 2015–1H17

Source: Mergermarket, ThomsonOne, Thomson Reuters Eikon, Capital IQ, EY analysis


Saudi Arabian companies were involved in more than 63% of the cross-border deals by volume during 2012 and 2016, of which 43% were with other Middle East and North Africa countries, followed by 30% with European countries

Saudi Arabia M&A deal flow analysis (2012–1H17)

83US$5.3b

133US$18.9b

128US$8.5b

KSA

Australia

and

Oceania

4US$0.04b

Key

Outbound: outflow of deals from Saudi Arabia to other countries

Inbound: inflow of deals to Saudi Arabia from other countries

Domestic: deals within Saudi Arabia

11US$1.1b

18US$9.6b

Asia14US$2.5b

12US$4.1b

18US$0.4b

45US$2.9b

40US$1.3b

52US$2.1b

Europe

Africa*South

America

North

America

US$32,649m#344

US$10,633m#29

US$5m#1

US$3,319m#63

US$6,586m#26

US$188m#1

US$43m

#4

US$3,405m#92

Other

MENA

countries

1US$0.005b

1US$0.2b

Source: ThomsonOne, Mergermarket, public Source, EY analysis

Note: Chart represents volume of deals from Saudi Arabia deal flow perspective; “#” represents number of deals; The volume and value of deals mentioned in the charts is the consolidated value for the period from 2012 to 2016; “Other MENA

countries” excludes Saudi Arabia

* Africa excludes North Africa. The overall deal values might not sum up to the total deal value due to rounding.

Section

Capital markets performance snapshot

04


The Nomu market has fallen by over 35% by the end of June 2017 since its launch, while the TASI, REITs, mutual funds and ETFs indices have been positive in the first half of 2017

Source: Tadawul, EY analysis.

*Nomu index — six months’ return based on start date 26 February 2017 to 22 June 2017; Mutual fund performance is based on average of performance of all the mutual funds for six months and one year ending 31 July 2017; ETFs

performance based on an average of three ETFs listed in Tadawul; six month index return indicates change in index between last trade date of December 2016 and June 2017; one year index return indicates change in index between last

trade date of June 2016 and June 2017.

4.0%

1.4%

7.5%

–36.4%

3.0%

–40.0% –30.0% –20.0% –10.0% 0.0% 10.0%

Six months index return (percentage) One year index return (percentage)

Tadawul all share index (TASI) — main market

Nomu- parallel market index

REITs

Mutual funds

ETFs 17.0%

4.4%

n/a

n/a

14.2%

0.0% 5.0% 10.0% 15.0% 20.0%

Capital markets performance at the end of June 2017


Out of the 20 sector indices in the Tadawul main market, 9 showed positive returns, with food and beverages, media and utilities sector indices being the top three in 1H17

Source: SAMA, Tadawul, EY analysis

*New sector classification of Tadawul (effective 8 January 2017); market capitalization as of 22 June 2017 (last trade date of 1H17); conversion rate of SAR1 to US$0.266631; six-month index return indicates change in index between last trade

date of December 2016 and June 2017; one-year index return indicates change in index between last trade date of June 2016 and June 2017.

0.5

0.7

0.9

1.1

1.9

2.1

3.5

3.9

5.3

7.0

7.4

7.6

10.5

11.6

29.0

30.8

33.3

46.9

124.6

141.7

0 50 100 150

REITs

Media

Consumer durables and apparel

Pharma, biotech and life sciences

Food and staples retailing

Commercial and professional services

Transportation

Consumer services

Capital goods

Energy

Retailing

Health care equipment and services

Diversified financials

Insurance

Utilities

Food and beverages

Real estate management and development

Telecommunication services

Banks

Materials

7.5%

20.3%

–14.5%

–13.2%

8.0%

–23.9%

–6.4%

–20.4%

–17.0%

–13.7%

–17.7%

1.2%

–12.9%

3.3%

12.1%

26.8%

–0.1%

0.8%

7.4%

–2.7%

–30% –20% –10% 0% 10% 20% 30%

0.0%

12.6%

–16.0%

–4.6%

2.8%

–5.8%

–17.8%

–23.5%

–6.7%

–4.5%

–14.0%

9.5%

–9.1%

11.5%

30.2%

43.4%

13.6%

4.4%

20.1%

10.0%

–40% –20% 0% 20% 40% 60%

Market capitalization (US$b) Six-month index return (percentage) One-year index return (percentage)Main market sectors

TASI: 3% TASI: 14%

Tadawul main market sector performance at the end of June 2017

Section

Equity market trends – Tadawul main market

05


9,574.5

11,061.1

8,284.9

5,459.8 5,416.5

7,166.4

125.8

115.2

45.1

26.0

53.9

0

20

40

60

80

100

120

140

0

2,000

4,000

6,000

8,000

10,000

12,000

Jan

-12

Fe

b-1

2

Mar-

12

Ap

r-1

2

May-1

2

Jun

-12

Jul-

12

Au

g-1

2

Se

p-1

2

Oct-

12

No

v-1

2

De

c-1

2

Jan

-13

Fe

b-1

3

Mar-

13

Ap

r-1

3

May-1

3

Jun

-13

Jul-

13

Au

g-1

3

Se

p-1

3

Oct-

13

No

v-1

3

De

c-1

3

Jan

-14

Fe

b-1

4

Mar-

14

Ap

r-1

4

May-1

4

Jun

-14

Jul-

14

Au

g-1

4

Se

p-1

4

Oct-

14

No

v-1

4

De

c-1

4

Jan

-15

Fe

b-1

5

Mar-

15

Ap

r-1

5

May-1

5

Jun

-15

Jul-

15

Au

g-1

5

Se

p-1

5

Oct-

15

No

v-1

5

De

c-1

5

Jan

-16

Fe

b-1

6

Mar-

16

Ap

r-1

6

May-1

6

Jun

-16

Jul-

16

Au

g-1

6

Se

p-1

6

Oct-

16

No

v-1

6

De

c-1

6

Jan

-17

Fe

b-1

7

Mar-

17

Ap

r-1

7

May-1

7

Jun

-17

Bre

nt c

rude o

il pric

e p

er b

arre

l (US

$)

TA

SI

TASI Brent crude spot price (US$)

TASI had broadly mirrored oil price movement during 2012-1H17. From middle of FY14 to the last quarter, significant decline in oil prices reflected panic investor sentiment, where TASI fell by 5,645 points from its highest level of 11,061 in FY14 to its lowest of 5,416 in FY16 from where it has improved during 1H17

TASI and Brent crude oil spot price per barrel (2012–1H17)

Source: EIA, Thomson Reuters Eikon, Capital IQ , EY analysis

Slump in oil prices due to the oversupply

of crude had a major impact on TASI

Highest peak in crude price

Highest peak in TASI

Lowest crude price

Lowest TASI

Deflection points

Brent crude prices start falling

TASI starts falling


140.2173.2

142.1117.1

136.5 141.7

82.0

101.3137.0

115.7114.5

124.6

40.7

50.0 46.9

43.845.0

46.914.9

21.5 27.0

27.2

33.933.3

14.9

20.727.2

23.1

23.530.8

15.3

16.717.2

18.0

25.7

29.0

10.3

9.810.6

10.8

11.4

11.6

21.5

25.319.0

16.6

12.7

10.5

1.5

2.85.6

5.0

7.4

7.6

5.9

9.4 11.5

9.6

6.27.4

26.2

36.639.3

34.2

31.6

27.0

373.4

467.4483.4

421.0

448.5

470.3

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

2012 2013 2014 2015 2016 1H17

Mark

et

capitaliz

ation (

US

$b)

Other sectors

Retailing


Diversified financials

Insurance

Utilities

Food and beverages



Banks

Materials

Among the top 10 sectors by market capitalization, real estate management and development, and utilities were the only two sectors that grew each year during 2012–16, while the diversified financials sector saw a drop in market capitalization each year after 2013

Market capitalization by sector* in Tadawul (2012–1H2017)

Source: Tadawul, EY analysis

*New sector classification of Tadawul (effective 8 January 2017); market capitalization as of December end of each year; top 10 sectors are based on 1H17 market capitalization; conversion rate of SAR1 to US$0.266631; other sectors include

energy, capital goods, transportation, consumer services, commercial and professional services, food and staples retailing, pharmaceutical, biotechnology and life sciences, consumer durables and apparel, media and REITs.

Top three sectors

Next top two sectors

► The top 10 sectors form an average of 93% of the total market

capitalization during 2012–1H17

► The top five sectors on an average represented 78% of the

market capitalization during the period

► By the end of 1H17, contribution of food and beverages sector

and banking sector to total market capitalization has increased

by 1.8% and 1% respectively, compared with 2016

Top 10 sectors

1

2

3

4

5

6

7

8

9

10

xSector contribution ranking based

on 1H17 market capitalization

Top three sectors

70% 69% 67% 66% 66%

Next top two sectors

8% 9% 11% 12% 13%

67%

14%


The real estate management and development, utilities, and food and beverages sectors were the top three market capitalization gainers among all the sectors in Tadawul, considering the impact of new listings over the past five years

Tadawul market capitalization by sector* — growth vs. change in contribution (2012–16)


*New sector classification of Tadawul (effective 8 January 2017); conversion rate of SAR1 to US$ 0.266631; 1H17 not included, since information from 2012 to 2016 is for the full year.

► The National Commercial Bank (NCB) listing improved the market

capitalization of the banking sector

► However, the listing of the Alandalus Property Company in 2016 did not

have much impact on the market capitalization of the real estate sector

The size of the bubble represents the market

capitalization (in US$b) of the respective sectors

at the end of December 2016.

Y axis

This represents the CAGR growth of market

capitalization of respective sectors between

2012 and 2016 (e.g., the market capitalization of

the health care equipment and services sector

grew by 48% during the period).

X axis

This represents each sector’s change in

contribution to the total market capitalization

between 2016 and 2012. (e.g., contribution of

the health care equipment and services sector’s

market capitalization to the total market

capitalization was 1.6% in 2016 and 0.4% in

2012. A change of 1.2% is represented).

Key

Materials

136.5

Banks

114.5Telecommunication

services45.0

Real estate

management and development

33.9

Utilities

25.7

Food and

beverages23.5

Diversified

financials12.7

Insurance

11.4

Energy

7.9

Health care

equipment and services7.4

Capital

goods6.8

Retailing

6.2

Transportation

4.8

Consumer

services4.5

Commercial and

professional services2.6

Food and staples

retailing1.8

Pharma, biotech

and life sciences1.3

Consumer

durables and apparel

1.0

Media

0.9

REITs

0.1

–30.0%

–20.0%

–10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

–8.0% –6.0% –4.0% –2.0% 0.0% 2.0% 4.0%

CA

GR

(perc

enta

ge)

of

mark

et

capitaliz

ation,

by

secto

r (2

012

–16)

Change in contribution to total market capitalization by sector between 2012 and 2016 (percentage)

► Market capitalization of the materials sector

did not increase, even though there were

three new listings during the period

► New listings of Saudi German Hospital and Al Hammadi in the health

care equipment and services sector helped to lift its market

capitalization by 4.8 times between 2012 and 2016

► SGS listing in the transportation sector supported the market capital

growth by 3.8 times during the period


9,5006,433

10,02912,470 14,187

4,532

15,333

10,423

15,69313,213

14,184

3,527

17,669

11,143

11,39613,902

12,327

5,339

11,595

6,396

8,6467,730

9,560

2,737

5,142

2,683

4,7184,153

3,230

1,385

3,145

2,548

3,584 2,3012,726

856

9,766

5,874

8,0764,459

2,600

745

1,678

885

1,750

1,2761,370

597

494

630

737

5491,187

481

1,965

903

1,090

8071,082

573

6,259

4,584

5,086

5,1375,276

2,794.7

82,545

52,502

70,803

65,99667,729

23,567

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2012 2013 2014 2015 2016 1H17

Yearl

y share

s t

raded (

in m

illio

ns)

Other sectors


Consume services

Energy


Food and beverages

Capital goods

Insurance


Materials

Banks

The yearly shares traded in Tadawul have stabilized to an extent after a steep fall in 2013, with the banking sector gaining prominence among investors, while trading in the telecommunication sector has dropped during 2012–16

Yearly shares traded by sector* in Tadawul (2012–1H2017)


*New sector classification of Tadawul (effective 8 January 2017); top ten sectors are based on 2016 shares traded; Other sectors include transportation, retailing, media, commercial and professional services, utilities, diversified financials, food

and staples retailing, health care equipment and services, pharma, biotech and life sciences, and REITS.

► The top 10 sectors by shares traded form an

average of ~92% of the total yearly shares traded

during 2012–16

► In 1H17, contribution of real estate management and

development sector to total shares traded was at

23% compared with 18% in 2016

1

2

3

4

5

6

7

8

9

10

xSector contribution ranking based

on 2016 shares traded


The banking sector witnessed the maximum increase in trading activity over the past five years, with a CAGR growth of ~11% and change in contribution of ~9%


*New sector classification of Tadawul (effective 8 January 2017); 1H17 not included since information from 2012 to 2016 is for full year.

Tadawul shares traded in a year, by sector* — growth vs. change in contribution (2012–16)

Banks

14,187

Materials

14,184Real estate

mgmt and dev't12,327

Insurance

9,560Capital goods

3,230

Food and

beverages2,726

Telecommunication

services2,600

Energy

1,370

Consumer

services1,187

Consumer

durables and apparel1,082

Transportation

1,006

Retailing

986

Media

640

Commercial and

professional Svc638

Utilities

607

Diversified

financials506

Food and

staples retailing

503

Health care

equipment and svc

304 Pharma,

biotech and life science

48REITs

37

–40.0%

–30.0%

–20.0%

–10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

–9.0% –4.0% 1.0% 6.0% 11.0%

CA

GR

(perc

enta

ge)

of

yearl

y s

hare

s t

raded,

by

secto

r (2

012

–16)

Change in contribution to total yearly shares traded between 2012 and 2016 (percentage)

► The new listing of NCB did not contribute

much to the yearly shares traded, as it

formed just 1% of the total banking sector

activity in 2016

► There was a change of more than 35% in market

activity in both sectors (with just two companies each).

However, shares traded by each sector form just 1% of

the total shares traded in Tadawul

► Yearly shares traded in the

telecommunication

services have dropped by

almost a quarter over the

past five years

► No new listings have been

registered in the sector

during the period

► The real estate

management and

development sector

witnessed a heavy fall

in activity, although

there was a new

listing in 2016

The size of the bubble represents the total

yearly shares traded (in millions) of the

respective sectors during 2016

Y axis

This represents the CAGR growth (%) of total

yearly shares traded by the respective

sectors between 2012 and 2016 (e.g., the

yearly shares traded by the

telecommunication services declined by

–28% during the period)

X axis

This represents each sector’s difference in

contribution (in %) to the total yearly shares

traded between 2016 and 2012 (e.g., the

contribution of the telecommunication

services sector’s yearly shares traded to total

shares traded was 4% in 2016 and 12% in

2012. A change of –8% is represented)

Key

Section

IPO trend analysis — Tadawul main market

06


Since 2012, 25 companies have raised US$10.5b though IPOs in Tadawul main market; 2014–16 witnessed limited IPO activity in Saudi Arabia, while no companies went public in 1H17

KSA IPO activity — value and volume (2012–1H17)

1,420

523

6,726

1,107

745

0

7

5

6

4

3

0

1

2

3

4

5

6

7

8

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2012 2013 2014 2015 2016 1H17

Volu

me (n

um

ber o

f IPO

s)

Capital

rais

ed (

US

$m

)

Capital raised (US$m) Volume (number of IPOs)

Source: Thomson Reuters Eikon, Capital IQ, EY analysis.

Note: No companies completed IPO in Tadawul main market in 1H17.

► NCB raised US$6b through IPO

during 2014


Average size of IPOs in Saudi Arabia during the last five years was ~US$ 188m, excluding the largest IPO (NCB), valued at US$6b

Average size of IPOs (2012–16)

203

105

1,121

277248

0

200

400

600

800

1,000

1,200

2012 2013 2014 2015 2016

Ave

rag

e I

PO

siz

e (

US

$m

)

Average of all IPOs:

US$421m

Average (excluding NCB):

US$188m




Materials and health care were the other two prominent sectors in terms of capital raised in Saudi Arabia, apart from banking

KSA’s IPO activity by sector — value (2012–16)

US$752m

US$5,998m

US$584.6m

US$1,120.9m

US$880.1m

US$354.1m

Banks

Materials

Health care

Transportation

Commercial and

professional

services

Capital goods

Retailing

Consumer

durables

and apparel

Real estate

management

and

development

Food and

staples

retailing

Insurance

Consumer

services

NCB

City Cement, Northern Cement,

Najran Cement, Alyamamah Steel,

MEPCO, UACC, Takween

Saudi German Hosptl, Al Hammadi,

Dallah Health, National Medical Care Co

Saudi Ground Services

Al Tayyar Travel Group, Abdul

Mohsen Al Hokair Group

Saudi Air Lines Catering

US$338.3m

US$134.4m

US$127.3m

US$100.8m

US$72m

US$58m

EIC, Bawan

SACO

L’azurde

Andalus

Farm Superstores

Jazira Takaful, Alinma Tokio,

Metlife AIG ANB

NCB’s US$6b IPO was the largest IPO in MENA. It

was oversubscribed by 23 times.


Note: No companies completed IPO in Tadawul main market in 1H17; company names based on respective Tadawul trading name.


The slumping oil prices and general economic slowdown affected the number of companies going for IPOs during 2015–16

KSA IPO activity by sector — volume (2012–16)

Sector

Year Banks

Capital

goods

Commercial

and

professional

services

Consumer

durables

and apparel

Consumer

services

Food and

stapled

retailing

Health care

equipment

and services Insurance Materials

Real estate

management

and

development Retailing Transportation Total

FY12 1 1 1 1 3 7

FY13 1 1 2 1 5

FY14 1 1 1 1 1 1 6

FY15 1 1 1 1 4

FY16 1 1 1 3

Total 1 2 1 1 2 1 4 3 7 1 1 1 25

Materials and health care contributed 44% to the total number of IPOs raised during 2012–16.




The average price-to-earnings multiple of IPOs in Saudi Arabia at the time of listing was ~14.6x, excluding the National Medical Care Company, during the past five years

Price-to-earnings (P/E) multiple* IPOs in Saudi Arabia at the time of listing (2012–16)

13.0

21.2

14.2

17.7

14.9

0.0

5.0

10.0

15.0

20.0

25.0

2012 2013 2014 2015 2016

Ave

rag

e y

earl

y P

/E r

atio/m

ultip

le

► The National Medical Care Company (Care) had a P/E

ratio of 35.9x, which moved the average P/E for the year

from 13.9x to 21.2x.

► All IPOs: 15.7x

► Excluding Care: 14.6x

Average P/E ratio


Note: * P/E multiple unavailable for Umm Al-Qura Cement Company, which was a greenfield project, and for all of the three insurance companies that were making losses prior to their IPOs; No companies completed IPO in Tadawul main market in 1H17.


Health care equipment and services and retailing were the top sectors, with the highest average P/E multiple at the time of listing in Saudi Arabia

P/E multiple of IPOs in Saudi Arabia at the time of listing, by sector* (2012–16)

Source: Thomson Reuters Eikon, EY analysis

Note: *New sector classification of Tadawul (effective 8 January 2017); P/E multiple unavailable for Umm Al-Qura Cement Company, which was a greenfield project, and for all of the three insurance companies that were making losses prior to their IPOs; No companies completed IPO in Tadawul main market in 1H17.

4

1

1

1

1

7

2

1

1

2

1

3

Number of companies

Excluding the P/E of Care (46.7x), the average of

health care equipment and services would have

been 16.2x. The sector would have still been one

of the top sectors with the highest P/E ratio at the

time of listing.

Saudi Company for Hardware was the only IPO in

the retailing sector.

In the materials sector, Takween Advanced

Industries had a P/E ratio of 24.3x, and the lowest

P/E was 6x for City Cement Company.

10.2

11.9

12.1

12.6

14.5

14.7

15.1

15.5

15.7

22.3

23.8

P/E multiple at the time of listing

Banking


Retailing

Transportation



Materials

Capital goods

Food and staples retailing

Insurance

Consumer services


n/a


Majority of the companies offered 30% equity for the initial public listing in Saudi Arabia. IPO proceeds were used as exit routes by shareholders in 60% of the public issues during the five years

Exit by shareholders

60%

Meeting working capital

requirements/improving solvency position 12%

Expand operations

28%

5

2

4

1

1

4

1

4

3

0 1 2 3 4 5 6

25%

30%

50%

Number of IPOs

Equity

off

erings (

perc

enta

ge)

2016 2015 2014 2013 2012

All the four materials sector (cement

segment) companies that completed

IPOs in the period offered a 50% equity

offering

► The CMA approved NCB’s equity

offering of 25% owned by the PIF

► The exception to the NCB by the

CMA on the lower equity offering

was after considering the number

of shares offered (500m)

Source: Tadawul, IPO prospectus, Thomson Reuters Eikon, EY analysis


Among the IPOs in Saudi Arabia during

the 2012–16 period, 80% offered

equity of 30%, which was the minimum

level set by the CMA for listing

Percentage of equity offered by KSA IPOs (2012–16) KSA IPOs — use of proceeds analysis (2012–16)


Slowdown in the Saudi Arabian economy during 2016 also impacted the IPO market, with average returns of listed companies during 2016 being negative, as well as much lower average oversubscription rates compared with the previous four years

IPO oversubscription rate and average return (percentage) generated post listing in Tadawul, by year (2012–16)

Source: Thomson Reuters Eikon, SAMA, public sources, EY analysis

Note: Averages are based on holding period returns during the respective years; week one considers return as at the end of 7 days after listing, first month considers return as at the end of 30 days after listing, first year-end return considers return at the end of 31 December for the respective year of listing; no companies completed IPO in Tadawul main market in 1H17.

0

–20

140

100

160

120

40

20

200

180

0% 0%

2014

28%

189%

100%108%

42%

0%

2013

29%

–19%

2015

–1%

144%

41%

23%

–17%–4% –4%

2012 2016

3%

–2%–3%

Average day-one return (percentage) Average week-one return (percentage) Average first year-end return (percentage)Average first month return (percentage)

Retu

rns (

in p

erc

enta

ge)

Average oversubscription

rate: (2012–16): 10.2x8.1x 21.6x 7.7x 3.5x6.2x

The average returns of companies

listed on Tadawul during 2016 were

negative.

2013 witnessed high average

returns across categories. This

was largely due the returns of the

two insurance companies Metlife

AIG ANG and Jazira Takaful.

2014 witnessed a high

oversubscription rate for IPOs, with

five out of six companies being

oversubscribed by more than

23 times.


Source: Thomson Reuters Eikon, SAMA, public sources, EY analysis

*New sector classification of Tadawul (effective 8 January 2017); averages are based on holding period returns of IPOs classified under the respective sectors during 2012–16; week one considers return at the end of 7 days after listing; first

month considers return at the end of 30 days after listing; first year-end return considers return at the end of 31 December for the respective year of listing; no companies completed IPO in Tadawul main market in 1H17.

The insurance, and food and staples retailing sectors witnessed the highest first month and year-end return among other sectors during the period. Health care equipment and services witnessed the highest positive average returns across all four categories

IPO oversubscription rate and average return (in percentage) generated post listing in Tadawul, by sector* (2012–16)

0

–50

300

250

200

100

50 36%

–5%

30%

–2%

Consumer

durables and

apparel

–47%Transportation

–18%

–5%

0%

11%

12%23%

0%9%7%

Insurance

6%

108%

60%

0%

Retailing

–2%

34%

–20%–8%

–2%

295%

Consumer

services

5%

38%38%32%

0%

Materials

20%

40%

Health care

equipment and

Services

43%56%

Commercial and

professional

Services

30%22%

2%

3%

Capital goods

23%

12%

25%

0%

Banks

220%

34%

0%

Real estate

management

and development

–1%

23%16%

Food and

staples

retailing

190%

Average day-one return (percentage)

Average first year-end return (percentage)

Average week-one return (percentage)

Average first month return (percentage)

Sto

ck r

etu

rns (

perc

en

tag

e)

Average

oversubscription

rate

16.4 5.6 2.9 14.8 25.5 10.1 12.3 5.0 7.8 9.1 6.223.0

Sectors with top average stock returns attained for

first month and first year end

Sectors with positive stock returns across all four

return time line categories post-listing


Metlife AIG ANG and Jazira Takaful witnessed the highest returns after the first month and first year-end post-listing on Tadawul. Five out of six companies that completed an IPO during 2014 had been oversubscribed by more than 23x compared with an average of 10x during the five years

Source: Tadawul, Thomson Reuters Eikon, public sources, EY analysis

Note: week one considers return at the end of 7 days after listing; first month considers return at the end of 30 days after listing; first year-end return considers return at the end of 31 December for the respective year of listing; No companies

completed IPO in Tadawul main market in 1H17; company names based on respective Tadawul trading name.

IPO oversubscription rate and average share price return (in percentage) of IPOs listed in Tadawul, by issuer (2012–16)

2010–10–20 300 7060

–11%

–13%

30%

–1%

2%

–9%

–14%

60%

–11%

60%

23%

60%

60%

21%

60%

2%

–1%

60%

–8%

–2%

–5%

32%

34%

18%

60%

400–50 50 300 350100 1500

327%

–8%

–19%

39%

–8%

–15%

44%

–19%

22%

6%

353%

71%

281%

193%

21%

16%

34%

38%

108%

6%

–7%

–20%

6%

12%

–15%

Week-one share price return First-month share price return First year-end share price return

–100 5000 100 200 400

29%

174%

7%

–14%

190%

11%

–27%

–18%

–2%–36%

5%

500%

–33%

386%

232%

–3%

–23%

–27%

28%

60%

–9%

2%

–47%

–1%

30%

Returns (percentage) Returns (percentage) Returns (percentage)

Average: 59% Average: 57%

16

6 6

3 5

3

5

8

9

9

12

3

24 23

25 26

23 8

8

9

6 8

5 3

3

50 25 3015 2010

IPO subscription rate

2012

2013

2014

2015

2016

Issuers

Subscription rate

Average: 10x

Six out of seven

companies listed on

Tadawul during 2015

and 2016 witnessed a

negative share price

return.

Average: 20%

Takween

Dallah Health

Jazira Takaful

Alinma Tokio M

ALTAYYAR

Catering

City Cement

Najran Cement

EIC

Al Hammadi

Farm Superstores

NCB

Al Hokair Group

Metlife AIG ANB

Northern Cement

Bawan

Care

Saudi German Hosptl

LAZURDE

ALYAMAMAH STEEL

ALANDALUS

SGS

SACO

MEPCO

UACC


With just 4 out of 25 IPOs backed by private equity firms, PE back exits in the Saudi Arabian capital markets did not see much prominence during 2012–16

Private equity (PE)-backed KSA IPOs (2012–16) PE-backed KSA IPOs by sector (2012–16)

Source: Tadawul, prospectus, EY analysis

Note: Analysis is based on the publicly available information at the first level of shareholding at the time of listing. All offerings where a PE had 5% or more shareholdings at the time of listing were considered for the analysis. The analysis does

not include insurance companies; *New sector classification of Tadawul (effective 8 January 2017); there were no private equity backed IPOs during 2013 and 2015.

365

388

127

1

2

1

0

1

2

3

0

50

100

150

200

250

300

350

400

2012 2014 2016

Num

ber o

f IPO

s

Capital

rais

ed (

US

$m

)

Capital raised (US$m) Volume

127

585

168

0 300 600

Consumerdurables and

apparel

Consumer services

Health careequipment and

Services

1

2

1

VolumeAverage P/E multiple at

the time of listing

15.5x

Capital raised (US$m)

11.9x

15.2x


2.9%

4.2%

3.6% 3.7%

4.7%

2.6% 2.8%

1.4%

2.3%

2.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2012 2013 2014 2015 2016

Perc

enta

ge

Total IPO expenses as a percentage of capital Raised Underwriting fees as a percentage of capital raised

Total expense for IPOs in Saudi Arabia was, on average, 3.7% of the capital raised, with underwriting expense forming around 55% of the total expense for IPOs over the last five years

IPO expense and underwriting fee as a percentage of capital raised (2012–16)

Underwriting fees:

► Average : 2.3%

► Median : 2.8%

Total IPO expense:

► Average : 3.7%

► Median : 3.7%

Median

Average

Source: Tadawul, prospectus, Thomson Reuters Eikon and EY analysis

Note: total IPO expense as a percentage of capital raised of NCB, Takween, Alinma Tokio Marine and METLIFE AIG ANB has been excluded from the above analysis, as they were outliers; underwriting fee analysis excludes NCB, which is an

outlier. Non-meaningful data is also excluded from the analysis; no companies completed IPO in Tadawul main market in 1H17.


Majority of the underwriters charged fees of ~2.8% of capital raised from issuers in Saudi Arabia during 2012–16

Source: Tadawul, IPO prospectus, Thomson Reuters Eikon, EY analysis

Note: Analysis based on companies with meaningful data available in the sources; n/a indicates data not available or not meaningful; outliers (NCB, Takween, Alinma Tokio Marine and METLIFE AIG) are excluded to calculate average and

median; no companies completed IPO in Tadawul main market in 1H17; company names are based on respective Tadawul trading name.

IPO expense as a percentage of capital raised, by issuer (2012–16) Underwriting fee as a percentage of capital raised, by issuer (2012–16)

5.4%

5.5%

3.1%

5.0%

1.4%

3.8%

4.4%

2.7%

0.1%

3.2%

3.2%

4.4%

4.8%

4.8%

26.1%

5.1%

3.8%

3.1%

3.7%

1.6%

2.5%

3.7%

2.9%

15.3%

9.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Lazurde

Alyamamah Steel

Saudi German Hosptl

Alandalus

SGS

SACO

MEPCO

EIC

NCB

Al Hammadi

Al Hokair Group

UACC

Farm Superstores

Bawan

Metlife AIG ANB

Jazira Takaful

Care

Northern Cement

Dallah Health

City Cement

Catering

Altayyar

Najran Cement

Alinma Tokio M

Takween

2.8%

0.8%

2.8%

2.8%

1.0%

2.8%

2.8%

0.5%

0.1%

1.0%

2.2%

2.1%

na

3.4%

2.8%

2.8%

2.8%

2.3%

2.8%

na

na

2.8%

2.0%

2.8%

2.8%

0.0% 1.0% 2.0% 3.0% 4.0%

Lazurde

Alyamamah Steel

Saudi German Hosptl

Alandalus

SGS

SACO

MEPCO

EIC

NCB

Al Hammadi

Al Hokair Group

UACC

Farm Superstores

Bawan

Metlife AIG ANB

Jazira Takaful

Care

Northern Cement

Dallah Health

City Cement

Catering

Altayyar

Najran Cement

Alinma Tokio M

Takween

► Higher percentage, as the capital raised

was just US$16m, although the total

expense reached US$2.4m

► Lower percentage, as the capital raised

was the highest (US$6b) in five years,

although the fees was just US$6.7m

Average: 3.7%

Median: 3.7%

Average: 2.3%

Median: 2.8%

► Higher percentage, as the capital raised

was just US$14m, although the total

expense reached US$3.6m

► The highest underwriting

fee has been charged for

the IPOs of Middle East

Healthcare Co.

(~US$13m) and Al

Tayyar Travel Group

(~US$10m) since 2012

Section

Sukuk market

07


The Saudi sukuk market remained fairly subdued from 2014–16, as the complexity of sukuk issuance continued to weigh on the issuance volume. However, 1H17 showed significant improvement in sukuk issuances

Total value/total number of sukus issued and trend of Sukuk issuance (2012–1H17)

Source: Thomson Eikon, News articles, EY analysis

The value of Sukuk issued decreased by 78.7% during the period 2012–16, owing to the Saudi Arabia’s greater preference for conventional bond issuance. The size and frequency of sukuk

issuance reduced from 2014 onward due to complexity in the Islamic debt market, resulting from the differences in Sharia interpretation with the global standards, along with the introduction of

innovatively structured sukuks. In 1H17, the total value increased on account of the issuance of banking and financial sector sukuks.

6,254

10,057

5,027 4,640

1,334

3,423

7

10

9 9

4

3

0

2

4

6

8

10

12

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015 2016 1H17

Num

ber o

f Sukuk is

sued

US

$m

Total value of sukuk issued # of sukuk issued

0

500

1,000

1,500

2,000

2,500

3,000

2012 2013 2014 2015 2016 1H17

US

$m

Range Mean Median

The major sukuk issuance by

banks and other financials

sector resulted in a spike in

the average deal size in 1H17


With the tenure extended from five to seven years, various sectors prefer the sukuk market, with the biggest number issuance by the banking and financial sector

Sukuk issuance value (US$m) and volume by sector (2012–1H17)

2012 2013 2014 2015 2016Sectors

Aerospace4,001

# 1

Agency

Banking

Chemicals

Electric utility

Financial*

Food processing

Industrials

Oil and gas

Services

Transportation

Utility

4,057

# 1

5,33# 1

1,280

# 3

2,134

# 3

2,400

# 3

2,800

# 5

1,067

# 2

587

# 2

1,200

# 1

707# 2

2,400# 2

173# 1

267# 1 # 1

267

# 1

800

# 3

427

# 1

107

# 1

267

# 1

133# 1

1,040

# 1

667

# 1

0.3

Total

8,481

533

9,681

587

1,200

6,547

1,493

107

267

133

1,040

667

#4

#1

#16

#2

#1

#8

#5

#1

#1

#1

#1

#1Source: Thomson Eikon

* The financial sector comprises financial institutions other than banksTop three sectors by value

1H17

423

# 2

3,000# 1

# - number of sukuk issuances.


All the sectors posted an investment grade with low risk and relative ability to meet financial commitments

Fitch long-term issuer default ratings (2012–16)

Sukuk issuance across various sector was backed by ratings reflecting low risk and high credit quality

Ratings and their risk denominations

AAA to A–

BBB+ to B–

CCC to C

D

RD

High credit quality and low risk

Good credit quality; however, speculative

Substantial to high credit risk

High default risk

Restricted default

Agency*

Banking

Chemicals

Oil and gas

Utility

Low High

Low High

Low High

Low High

Low High

Low High

Low High

Low High

Low High

Low High

Low High

Low High

Low High

Low High

Low High

Low High

Fitch long-term issuer default rating (risk profile)

2012 2013 2014 2015

Low High Low HighLow HighLow High

Low High

Low High

Low High

Low High

2016

Low High

Sectors

Source: Thomson Eikon

Note: a few sectors have been excluded from the analysis, including aerospace, financial, food processing, industrials, and service and transportation, due to data paucity. 1H17 sukuk issuances excluded due to data paucity

* Agency includes Saudi Telecom Company.


Banks have been consistently contributing to sukuk issuance over the last five years, as sukukclassifies for the Tier II capital requirements under Basel III

Source: Thomson Reuters, news articles

*Yearly sukuk issuance value.

Note: 1H17 not considered due to data paucity

Major avenues of investing the sukuk proceeds by sectors

1Used to strengthen Tier II

capital to comply with

regulations

Banking



regulations

Aerospace



regulations

Food processors

4 Meeting working capital requirement; refinancing financial obligations andcapital expenditure

Utility

2012 2013 2014 2015 2016

US$6,253m* US$10,056m* US$5,027m* US$4,640m* US$1,334m*

Aerospace — to construct

new King AbdulAziz

International Airport

Financial — to purchase

assets and on sale

commodities for business

purposes

Banking — to strengthen

Tier II capital to comply with

regulatory purposes

Food processing — for

general purposes

Aerospace — to finance

expansion of Jeddah's King

Abdulaziz Airport and King

Khaled International Airport

Financial — to fund

construction of plant and lease

the issuer’s proportional

interest

Banking — to strengthen

Tier II capital for regulatory

purpose and to

expand Islamic banking

Food processors —

general purposes

Banking — strengthen Tier II

capital for regulatory purpose

and to expand Islamic banking

Services — to meet working

capital requirements, refinance

existing debt, meet capital

expenditure and make other

investments

Industrial — for general

purposes and refinancing of the

existing debt

Financial — for general

purposes and repayment of its

existing debt, and financing of

investments

Food processors — to

finance capital investment

program and invest in

strategies for funding

diversification

Banking — to strengthen Tier II

capital for regulatory purpose

and to expand Islamic banking

Financial — used for

refinancing of debt and

general business purposes

Banking — used for general

purposes, including

repayment of financial

obligations

Oil and gas — for

strengthening the reserves

Utility — to meet working

capital requirements,

refinance existing debt and

meet capital expenditure

Section

08

REITs market


REITs will modernize the Saudi capital market and will further help in realizing the National Transformation Program under Saudi Vision 2030

Source: Tadawul

Structure of the REITs

REIT

Properties Custodian Unit holders

Property managerFund’s board of directors

Fund manager

Real estate management

service

Income generated from rent

Property management fee

Real estate ownership

Working in the interest of the unit

holders

Real estate custody fees

Fee

Investment in the funds

Management services Management fee

Dividend distribution

► In Saudi Arabia, a REIT is defined as a closed-

ended investment company that owns income-

producing real estate

► REITs are traded as units at Tadawul and are

traded as equities in the market. They are

generally managed by collectively investing and

owning real estate projects, which in turn qualify to

generate a periodical income in the form of cash

dividends

► Unlike real estate investment funds (REIFs),

REITs are flexible to trade due to the lack of

complexity, transparency, subscription and

liquidation

► REITs can help realize the broader goals of the

National Transformation Program (NTP) and Saudi

Vision 2030. The NTP mentions several initiatives

which aim to increase the real estate sector’s

contribution to overall GDP

► In Saudi Arabia, due to the nature of the real

estate sector, with frequent rent reviews and asset

appreciation, REITs can be an effective hedge

against inflation

► REITs bring in alternative sources of finance to the

private sector, which can facilitate the participation

of the private sector in raising the supply of real

estate

How can REITs benefit the Saudi capital market?

DiversificationStronger historical

returnsAccessibility Transparency

REITs can offer diversification

benefits to the investors by

allowing them to spread their

risks in multiple real estate

segments (residential,

commercial, industrial and

agricultural properties) and

markets (25% of REITs can be

invested outside the Kingdom).

The zero tax for remitted

dividends for Saudi REITs,

namely other asset classes,

increases its attractiveness to the

QFIs. Currently, foreign investors

need to pay a withholding tax

rate of 5% when repatriating

dividends.

Accessibility to Tadawul and tax

benefits for QFIs will bring in

higher participation from the

QFIs. Their increased

participation in the capital market

will modernize the economy,

along the lines of Vision 2030.

The introduction of REITs in the

Kingdom, coupled with effective

regulatory oversight, will ensure

increased levels of transparency,

with an improved real estate

transparency score (ranked 63

out of 109 constituents) and will

bring about growth in the sector.


REITs are at a nascent stage and introduction of regulations will bring in standardization

Source: Tadawul

REIT

assets

Foreign

asset

restrictions

► REITs can invest in residential, commercial, industrial and

agricultural properties; whether they are local, regional or

global. However, they cannot invest in vacant lands.

► The value of assets invested outside the

Kingdom should not exceed 25% of a

REIT's total asset value.

► Closed-ended fund

Number of

investors

Public

ownership ► Minimum 50

► Minimum 30% of total

REIT units owned by

public

► Open to Saudi and GCC

citizens, and non-Saudi

residents in the Kingdom

Investor

ownership

► SAR10 per unit

► Minimum SAR100m

► Should not exceed 50% of total fund asset value

► Minimum 75% of total asset value invested in income-producing real estate

► 90% of the fund’s net income to be distributed to unit holders as cash dividends at least once a year

Investment opportunities

Legal form

Investor restrictions

Nominal value

Capital requirement

Borrowing restrictions

Investment policy

Distribution requirements

Reinvesting profits ► Minimum of 90% of profit to be distributed and only 10% of profits allowed to be reinvested


Saudi REITs trade in low volumes due to the unfavorable market conditions in the real estate sector

REITs issued in Saudi Arabia

Initial investor sentiments

spiked the value traded on the

second day of listing


1Riyad REIT

fund

Objective is to invest in income-producing real estate assets in Saudi

Arabia

Dividend yield: 2.12%

2AlJazira Mawten

REIT fund

Objective is to invest in AlKhumrah warehouses in

Jeddah city

Dividend yield: na

2.93

3.18

0

10

20

30

40

50

0.0

1.0

2.0

3.0

4.0

5.0

13 N

ov 1

6

20 N

ov 1

6

27 N

ov 1

6

04 D

ec 1

6

11 D

ec 1

6

18 D

ec 1

6

25 D

ec 1

6

01 J

an 1

7

08 J

an 1

7

15 J

an 1

7

22 J

an 1

7

29 J

an 1

7

05 F

eb

17

12 F

eb

17

19 F

eb

17

26 F

eb

17

05 M

ar

17

12 M

ar

17

19 M

ar

17

26 M

ar

17

02 A

pr

17

09 A

pr

17

16 A

pr

17

23 A

pr

17

30 A

pr

17

07 M

ay 1

7

14 M

ay 1

7

21 M

ay 1

7

28 M

ay 1

7

04 J

un 1

7

11 J

un 1

7

18 J

un 1

7

Volu

me tra

ded (m

illions)

Price (

US

$)

2.93

4.89

0

5

10

15

20

25

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

15 F

eb

17

22 F

eb

17

01 M

ar

17

08 M

ar

17

15 M

ar

17

22 M

ar

17

29 M

ar

17

05 A

pr

17

12 A

pr

17

19 A

pr

17

26 A

pr

17

03 M

ay 1

7

10 M

ay 1

7

17 M

ay 1

7

24 M

ay 1

7

31 M

ay 1

7

07 J

un 1

7

14 J

un 1

7

21 J

un 1

7

Volu

me tra

ded (m

illions)

Price (

US

$)


Jadwa REIT Al Haramain Fund and Taleem REIT Fund are newly listed REIT funds and the performance have been relatively stable since listing

REITs issued in Saudi Arabia

3Jadwa REIT Al

Haramain Fund

Objective is to investprimarily in real estate

assets in the Holy cities of Makkah and Al Madinah

Dividend yield: na

4Taleem REIT Fund

Objective is to invest in or acquiring real estate assets

that are linked to the educational or training

sector

Dividend yield: na


2.93 3.18

0

10

20

30

40

50

0.0

1.0

2.0

3.0

4.0

5.0

30 A

pr

17

02 M

ay 1

7

04 M

ay 1

7

06 M

ay 1

7

08 M

ay 1

7

10 M

ay 1

7

12 M

ay 1

7

14 M

ay 1

7

16 M

ay 1

7

18 M

ay 1

7

20 M

ay 1

7

22 M

ay 1

7

24 M

ay 1

7

26 M

ay 1

7

28 M

ay 1

7

30 M

ay 1

7

01 J

un 1

7

03 J

un 1

7

05 J

un 1

7

07 J

un 1

7

09 J

un 1

7

11 J

un 1

7

13 J

un 1

7

15 J

un 1

7

17 J

un 1

7

19 J

un 1

7

21 J

un 1

7

Volu

me tra

ded (m

illions)

Price (

US

$)

2.93

3.36

0

10

20

0.0

1.0

2.0

3.0

4.0

5.03

0 M

ay 1

7

31 M

ay 1

7

01 J

un 1

7

02 J

un 1

7

03 J

un 1

7

04 J

un 1

7

05 J

un 1

7

06 J

un 1

7

07 J

un 1

7

08 J

un 1

7

09 J

un 1

7

10 J

un 1

7

11 J

un 1

7

12 J

un 1

7

13 J

un 1

7

14 J

un 1

7

15 J

un 1

7

16 J

un 1

7

17 J

un 1

7

18 J

un 1

7

19 J

un 1

7

20 J

un 1

7

21 J

un 1

7

22 J

un 1

7

Volu

me tra

ded (m

illions)

Price (

US

$)

Section

Nomu market

09


The parallel market is expected to deepen the capital market base and achieve Saudi Arabia’sVision 2030

Additional source of funding for SMEs to access capital

Increased diversification and deepening of the capital market

Objective of

establishing

Nomu market► The parallel market is an alternative

platform for companies to go public with

less stringent listing requirements, and

incorporates companies with lower market

capitalization (minimum SAR10m).

► The Nomu market opened a new avenue

for SMEs to raise capital in a more cost-

effective manner compared with the main

market (Tadawul).

► It will also provide an additional exit route

to PE investments in SMEs.

► Lower floatation requirement (20% vs.

30% in the main market) will make Nomu

attractive for family-owned businesses,

which will help them enhance their

corporatization.

► Introduction of Nomu market supports the

Vision 2030 objectives, which envisages

increasing the SME contribution to 35% of

the GDP from 20% currently. It also aims

at further developing the capital markets.

Source: Saudi Arabia - all industries – all sectors (Al Rajhi Capital), Tadawul, News articles

Company

type

Company

performance

Financial

statements

Investors’

share

At least 20% of shares owned by qualified institutions, with 5% as individual limit

Legal advisor

Financial advisor mandatory; legal advisor optional

Lock-in period

100% of pre-offering investor shares for one year

Market

capitalization

Minimum SAR10m

Criteria for offering and listing processes

► Saudi Joint Stock Company

► A majority of its capital

owned by citizens of a

Member State of the GCC

and enjoys a nationality in

the Gulf region

► Minimum one year of

operational and

financial performance

► No profitability track

record required

► Annual audited statements

► Quarterly reviewed FSs

► Disclosure of material information

Shareholding

► If market value for all shares to be listed is more than SAR40m — minimum 50 public shareholders

► If market value for all shares to be listed is less than SAR40m — minimum 35 public shareholders


Nomu- parallel market is restricted to qualified investors; Authorized Persons (APs) must determine the eligible investors

Who can invest in the parallel market?

1 APs, for their own accounts

2Clients of APs, provided AP is appointed as an investment manager to take the decisions

3Government of the Saudi Arabia or anybody recognized by the authority/exchange

4Government-owned companies

5 GCC-based companies and funds

6Investment funds

7 QFIs

► Natural person allowed to open an investment account

► An account in the Securities Depository Center

► Fulfilling any of the below criteria:

► Has conducted transactions in the security market of not

less than SAR40m in total and not less than 10 transaction

in each quarter during the last 12 months (LTM)

► Average size of the natural person’s portfolio exceeds

SAR10m during the LTM

► Holds the General Securities Qualification Certificate, which

is recognized by the authority

8Natural persons

Qu

ali

fie

d i

nve

sto

rs

Source: Saudi Arabia — All Industries — All Sectors (Al Rajhi Capital), Tadawul


Liberal listing and capitalization requirements make way for capital raising and provide PE exit routes to SMEs and family-owned businesses

Source: Saudi Arabia — All Industries — All Sectors (Al Rajhi Capital), Tadawul

Key differences Main market Nomu — parallel market

Minimum market capitalization SAR100m (US$27m) SAR10m (US$3m)

Percentage offered At least 30% At least 20%

Public shareholders At least 200 (a)If expected aggregate market value for all shares to be listed

exceeds SAR40m, at least 50 public shareholders required

(b)If expected aggregate market value for all shares to be listed is

less than SAR40m, at least 35 public shareholders required

Continual obligations

Standard disclosure requirements. Disclosure of

quarterly financial statements within 30 calendar

days from the end of the period and year-end

financial statements within 90 calendar days from

the end of the period

(a) Lighter financial disclosure requirements (with regard to time

permissible to disclose)

(b)

Disclosure of quarterly financial statements within 45 calendar

days from the end of the period and year-end financial

statements within 90 calendar days from the end of the period

Daily fluctuation limits ± 10% ± 20%


The highlight of the listing is that the PE firm backed only one IPO

9.0

4.7 4.3

57.6

12.8

31.6

5.9

64.8

6.8

0

10

20

30

40

50

60

70

Al-

Om

ran

In

du

str

ial T

rad

ing

Al-

Sa

ma

an

i F

acto

ry F

or

Meta

l In

du

str

ies

De

ve

lopm

ent

Wo

rks F

oo

d

Ra

yd

an

Ab

du

llah

Sa

ad

Moh

am

me

dA

bo M

oati f

or

Boo

ksto

res

Ba

aze

em

Tra

din

g

Ara

b S

ea

Info

rmatio

nS

yste

m

Th

ob

Al A

se

el

Al K

ath

iri H

old

ing

US

$m

Expand

operation1

Exit by

shareholders 7

11.5

5.9

9.0

61.9

109.2

0 20 40 60 80 100 120


Software and services

Capital goods

Consumer services

Retailing

PE-

backed

IPO× × × ×××

IPO objective*

Source: Company prospectus, EY analysis

× ×

* Al Kathiri Holding: 50% of IPO proceeds will be from exit by shareholders and 50% expansion operation

Size of the offering IPO activity by sector (US$m)


The average P/E multiple of companies in Saudi Arabia at the time of listing was ~12.5x

P/E multiples at the time of listing in Nomu market Market capitalization at the time of listing in Nomu market

Source: Saudi All Industries Sector 2017 (Al Rajhi Capital), Thomson Eikon, EY analysis

Note: P/E multiple based on IPO price and 2016 annualized figures; market capitalization based on respective company listing day close price and outstanding shares; Thob Al Aseel was listed on 15 June 2017, Al Kathiri Holding was listed on

9 July 2017 and all other companies was listed on 26 February 2017.

8.8

11.3

13.2

14.8

12.4 12.4

17.8

11.7

9.8

0.0

5.0

10.0

15.0

20.0

Al-

Om

ran

In

du

str

ial

Tra

din

g

Al-

Sa

ma

an

i F

acto

ry F

or

Meta

l In

du

str

ies

De

ve

lopm

ent

Wo

rks

Fo

od

Ra

yd

an

Ab

du

llah

Sa

ad

Moh

am

med

Abo

Moa

tifo

r B

oo

ksto

res

Ba

aze

em

Tra

din

g

Ara

b S

ea

Info

rmatio

nS

yste

m

Th

ob

Al A

se

el

Al K

ath

iri H

old

ing

PE

multip

le

Average PE: 12.5

53.8

28.1 26.0

230.4

76.8

126.4

35.2

54.4

20.8

0.0

50.0

100.0

150.0

200.0

250.0

Al-

Om

ran

In

du

str

ial

Tra

din

g

Al-

Sa

ma

an

i F

acto

ry F

or

Meta

l In

du

str

ies

De

ve

lopm

ent

Wo

rks

Fo

od

Ra

yd

an

Ab

du

llah

Sa

ad

Moh

am

med

Abo

Moa

tifo

r B

oo

ksto

res

Ba

aze

em

Tra

din

g

Ara

b S

ea

Info

rmatio

nS

yste

m

Th

ob

Al A

se

el

Al K

ath

iri H

old

ing

Mark

et

capitaliz

ation (

US

$)

Average market capitalization: US$72.4m


Removing the outlier*, the average weekly returns from the day of listing was at 3.2%. Additional listings will improve the position in the long run

Week-end returns from the day of listing in the parallel market

58.4%

11.4%

(4.9%)

(8.2%)

1.6%

16.7% 16.3%

9.5%

(16.9%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Arab Sea InformationSystem

Abdullah SaadMohammed Abo

Moati for Bookstores

Raydan Baazeem Trading Al-Omran IndustrialTrading

Development WorksFood

Al-Samaani FactoryFor Metal Industries

Thob Al Aseel Al Kathiri Holding Co

Retu

rn (

perc

enta

ge)

Average: 9.3%

Average*: 3.2%


* Outlier — Excluding Arab Sea Information System Co.


Volume traded in the parallel market has declined significantly over the period compared with the initial surge

Volume traded and closing index price in the Nomu market

1,597

1,1651,017

0.0

2.0

4.0

6.0

8.0

0

1,000

2,000

2/2

6/2

017

3/5

/2017

3/1

2/2

017

3/1

9/2

017

3/2

6/2

017

4/2

/2017

4/9

/2017

4/1

6/2

017

4/2

3/2

017

4/3

0/2

017

5/7

/2017

5/1

4/2

017

5/2

1/2

017

5/2

8/2

017

6/4

/2017

6/1

1/2

017

6/1

8/2

017

Volu

me tra

ded (m

illion)

Nom

u index

Volume traded Nomu Index

Source: Tadawul

Note: Average trade size is defined as cumulative volume traded divided by number of trades.

Key statistics

(as on 22 Jun 2017)

% index

change: –36.3%

Value traded (US$):

1.0m

Volume traded:

122,904

Section

Mutual funds and ETFs

10


AUMs from 2014 onward declined by double digits, stemming from the slow economic growth, however, the Q1 2017 shows significant improvement in the numbers

Total AUMs for investment funds — the investment funds in Saudi Arabia are the largest assets managed in the GCC region, at US$27.9b

23.5

27.529.5

27.4

23.4

27.9

240 236

252

270275 275

0

50

100

150

200

250

300

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2012 2013 2014 2015 2016 Q1 2017

Num

ber o

f inve

stm

ent fu

nds

Investment funds* (US$b) Number of operating funds

Source: SAMA

*Investment funds comprise mutual funds and ETFs.

Inve

stm

ent

funds (

US

$b)


The mutual industry in Saudi Arabia is primarily dominated by equity funds, and a major proportion of these funds focus on capital preservation

0.7%

1.5%

3.7%

4.0%

4.0%

7.7%

15.8%

62.6%

Other funds Funds of funds Bond/debt funds

Multi-assets funds Real estate funds Balanced funds

Money market funds Equity funds

Types of mutual funds in Saudi Arabia,

H1 2017

Composition of equity-

based mutual funds,

H1 2017► Stock fund or equity fund is a fund that invests in stocks; it is also called equity

securities

► Money market fund is an open-ended mutual fund that invests in short-term debt

securities, such as treasury bills and commercial paper

► Balanced funds are geared toward investors who are looking for a mixture of safety,

income and modest capital appreciation

► A real estate fund is a type of mutual fund that primarily focuses on investing in

securities offered by public real estate companies

► A multi-asset fund is a combination of asset classes (such as cash, equity or bonds)

used as an investment

► Debt funds primarily invest in bonds and other debt instruments, and will suit

investors who want to optimize current income assuming low to moderate levels

of risk

► A fund of funds is an investment strategy of holding a portfolio of other investment

funds rather than investing directly in stocks, bonds or other securities

► A growth fund is a diversified portfolio of stocks that has capital appreciation as its

primary goal, with little or no dividend payouts

► An income and growth fund is a mutual fund that has a dual strategy of capital

appreciation and current income generation through dividends or interest payments

► Income funds are mutual funds that seek to generate an income stream for

shareholders by investing in securities that offer dividends or interest payments

► A capital appreciation fund attempts to increase asset value, primarily through

investments in growth stocks

Key terms

Source: Tadawul

84.8%

13.5% 0.6%

1.2%

Capital preservation

Growth

Income

Income and growth


8.1

4.22.9 2.8

1.5 1.3 1.1 1.0 0.6 0.4

25

18

36

13

19

14 14

12

16

10

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Majority of the funds managed have been invested in domestic assets in Saudi Arabia valued at US$19b and foreign investments accounts valued at close to US$5b in Q1 2017

Top 10 mutual fund mangers in Saudi Arabia (industry overview) — Q1 2017

Fund Managers

Sources: Tadawul, GulfBase, Business Wire

AUMs (US$b) Number of funds managed

NCB Capital

Company

Samba Capital &

Investment

Management Co

Riyad Capital

Company

Al Rajhi Capital HSBC Saudi

Arabia Limited

Saudi Fransi

Capital

Arab National

Investment

Company

Aljazira Capital Alawwal Invest Jadwa

Investment


22.3

7.7

10.9

–2.7 –1.3

34.8

15.5

3.1

5.1

–7.9–6.0

34.1

11.8

–5.9–5.1

–12.1

5.3

26.4

9.7

0.5

3.0–1.4

–0.1

25.2

6.0

25.5

–2.4

–17.1

4.3

–1.6

–20

–10

0

10

20

30

40

2012 2013 2014 2015 2016 YTD(31st July 2017)

Perf

orm

ance g

row

th (

%)

HSBC China and India Equity Freestyle Fund

Samba Capital China Opportunities Fd (Al Izdihar)

Riyad South East Asian Fund

HSBC Global Emerging Markets Equity Fund

Saudi Fransi Al Naqaa Asia Growth Fund

Saudi Tadawul All Shares

The following charts showcase the top-performing funds based on the performance growth rate in July 2017

Top five performing funds as of 31 July 2017

αβ σ

1,19 0.43 13.02

1.20 0.63 16.63

1.22 –0.13 11.69

1.23 –0.24 11.85

1.58 –0.72 11.87

1

Source: Tadawul, Thomson Reuters Eikon

Note: “β” “α” and “σ” are the “Beta” “Alpha” and “Standard deviations” respectively of the fund for the one-year period as of 31 July 2017.


15.5

3.1 5.1

–7.9 –6.0

34.1

6.0

25.5

–2.4

–17.1

4.3–1.6

–20

–10

0

10

20

30

40

2012 2013 2014 2015 2016 YTD(31st July

2017)

Perf

orm

ance g

row

th (

%)



HSBC China and India Equity Freestyle Fund reported the highest growth, with a one-year beta value of close to one, depicting price movement in line with market from 2012 to 2016



Source: Thomson Reuters Eikon

Note: Performance growth Year-to-date (YTD) data is as 31st July 2017. Since top holdings information is not available, industry-based holdings have been considered.

Versus benchmark One year Three year Five year

Alpha 0.43 0.28 0.28

Beta 1.19 0.93 1.01

Information Ratio 0.62 0.13 0.14

R-square 0.93 0.79 0.77

Sharpe Ratio 0.59 0.14 0.21

Standard Deviation 13.02 14.99 15.21

Treynor Ratio 1.86 0.64 0.89

Top holdings*ldings

Tencent Holdings Ltd. 10%

Alibaba Group Holding Ltd. 9%

China Mobile Ltd 6%

Infosys Ltd. 6%

Baidu Inc. Sponsored ADR 6%

Wipro Ltd. 5%

Maruti Suzuki India Ltd. 4%


Alpha 0.63 –0.26 –0.09

Beta 1.20 0.78 0.79

Information Ratio 0.28 –0.11 –0.08

R-square 0.58 0.71 0.69




Top holdings*

Information Technology 33.31%

Financial 31.77%

Consumer 11.64%

Telecommunication Services 10.26%

Energy 4.07%

Real Estate 3.59%

22.3

7.710.9

–2.7

–1.3

34.8

6.0

25.5

–2.4

–17.1

4.3

–1.6

–20

–10

0

10

20

30

40

2012 2013 2014 2015 2016 YTD(31st July

2017)

Perf

orm

ance g

row

th (

%)




11.8

–5.9

–5.1

–12.1

5.3

26.4

6.0

25.5

–2.4

–17.1

4.3

–1.6

–20

–10

0

10

20

30

2012 2013 2014 2015 2016 YTD(31st July

2017)

Perf

orm

ance g

row

th (

%)



Riyad South East Asian Fund reported a positive growth rate in 2016 compared with a negative growth in 2015

Riyad South East Asian Fund



Note: Performance growth Year-to-date (YTD) data is as 31st July 2017. *Information not available.


Alpha –0.13 0.07 –0.07

Beta 1.22 1.13 1.13

Information Ratio 0.21 0.08 –0.01

R-square 0.96 0.95 0.91





Alpha –0.24 0.02 –0.07

Beta 1.23 0.98 0.99

Information Ratio 0.11 0.01 –0.05

R-square 0.97 0.92 0.91




Top holdings

Tencent Holdings Ltd. 8%

Alibaba Grp HLD-ADR 6%

Taiwan Semiconductor 6%

China Mobile Ltd. 4%

Yandex NV 3%

18.5

5.4

–2.6–7.5

2.2

29.4

6.0

25.5

–2.4

–17.1

4.3–1.6

–20

–10

0

10

20

30

40

2012 2013 2014 2015 2016 YTD(31st July

2017)

Perf

orm

ance g

row

th (

%)

Riyad South East Asian Fund Saudi Tadawul All Shares

Top holdings*ldings

Taiwan Semiconductor -

Aia Group Ltd -

Tencent Holdings -

Samsung Electronics -

Alibaba Group co -

HDFC Bank Ltd -

Indust. & Coml Bank China -


15.2

–5.6

0.6

–13.1

8.7

24.1

6.0

25.5

–2.4

–17.1

4.3

–1.6

-20

-10

0

10

20

30

2012 2013 2014 2015 2016 YTD(31st July

2017)

Perf

orm

ance g

row

th (

%)

Riyad Future Equity Fund Saudi Tadawul All Shares

Saudi Fransi Al Naqaa Asia Growth Fund and Riyad Future Equity Fund have reported significant growth in 2016 and have performed above the market index in the same time period

Saudi Fransi Al Naqaa Asia Growth Fund

Riyad Future Equity Fund


Note: Performance growth Year-to-date (YTD) data is as 31st July 2017. *Information not available

9.7

0.53.0

-1.4 -0.1

25.2

6.0

25.5

-2.4

-17.1

4.3

-1.6

-20

-10

0

10

20

30

2012 2013 2014 2015 2016 YTD(31st July

2017)

Perf

orm

ance g

row

th (

%)

Saudi Fransi Al Naqaa Asia Growth Fund Saudi Tadawul All Shares


Alpha –0.72 0.13 –0.04


Beta 1.58 1.07 1.03

Information Ratio –0.01 0.09 –0.01

R-square 0.95 0.87 0.74




Alpha –0.23 0.10 –0.01

Beta 1.22 1.12 1.15

Information Ratio 0.09 0.07 0.02

R-square 0.93 0.93 0.91




Top holdings

Latin America Fund -

China Focus Fund -

India Focus Fund -

Equities South Africa -

Top holdings*ldings

Tencent Holdings Ltd. 6.4%

Alibaba Group ADR 5.1%

Taiwan Semiconductor 4.8%

Baidu INC-US-ADR 2.0%

CSL Ltd. 1.9%

China Mobile Ltd. 1.9%

Largan Precision 1.4%

Infosys Ltd. 1.2%


Overview of Saudi Arabia’s major ETFs

FALOM ETFs

FALCOM Saudi Equity ETF

Sector allocation

(percentage of total portfolio)

Al Rajhi 19.88%

SABIC 13.92%

Jabal Omar 8.58%

STC 5.02%

Almarai 4.92%

MA’wgADEN 3.79%

Saudi Electricity 3.79%

SAVOLA Group 3.72%

Alinma 3.57%

Jarir 2.85%

SABIC 56.69%

YANSAB 9.85%

SAFCO 9.21%

Advanced 7.42%

TASNEE 7.22%

Petrochemical 4.63%

Sipchem 2.65%

Alujain 1.34%

CHEMANOL 0.70%

NAMA 0.29%

Top 10 holdings


Top 10 holdings


FALCOM Petrochemical ETF

56.69%

9.85%

9.21%

7.42%

7.22%

4.63%

2.65% 1.34%

0.70%

0.29% SABIC

YANSAB

SAFCO

Advanced

TASNEE

Petrochemical

Sipchem

Alujain

CHEMANOL

NAMA

23.0

29.8

28.624.8

27.728.1

20

25

30

35

2012 2013 2014 2015 2016 1H17

Unit p

rice (

SA

R)

FALCOM 30 Saudi Equity

24.1

31.727.9

20.0

26.2

26.1

20

25

30

35

2012 2013 2014 2015 2016 1H17

Unit p

rice (

SA

R)

FALCOM Petrochemical

38%

21%

13%

10%

6%

4%3%

2% 2%1% Banks

Real Estate

Food & Beverages

Telecom

Utilities

Retailing

Capital Goods

Energy

Insurance

Consumer Services

Top 10 holdings


Sources: Tadawul website, FALCOM website

Note: HSBC Saudi 20 Equity Index was not considered for the analysis due to data paucity. Top holdings and sector allocation data is as of June 2017

Section

Abbreviations and glossary

11


Abbreviations

GDP Gross domestic product

TASI Tadawul All Share Index

SAMA Saudi Arabian Monetary Authority

SAIBOR Saudi Arabian Interbank Offered Rate

GFCF Gross fixed capital formation

REIT Real estate investment trust

NTP National Transformation Program

REIF Real estate investment fund

AP Authorized person

PE Private equity

IPO Initial Public Offering

P/E Price-to-earnings

AUM Asset under management

GCC Gulf Cooperation Council

ETF Exchange-traded fund

QFI Qualified foreign investors

JSC Joint stock company

LLC Limited liability company

CMA Capital Market Authority

SBL Securities borrowing and lending

SDC Securities Depository Center

SME Small- and medium-sized enterprises

CAGR Compound annual growth rate


Glossary

Term Definition

AlphaA measure of active fund performance; average returns

discounted by market returns

Standard

deviationA measure of investment risk or volatility in subperiod returns

BetaA measure of sensitivity of fund performance to changes in

benchmark performance

Information

ratio

Risk-adjusted measure of performance; defined as average

return divided by standard deviation of active return

R-squareThe percentage of variability in fund performance explained by

benchmark performance

Sharpe

ratio

Risk-adjusted measure of performance, defined as average

excess return divided by standard deviation of excess return

Treynor ratioRisk-adjusted measure of performance, defined as average

excess return divided by beta

Term Definition

Natural

Person

A real human being, as opposed to a corporation, which is often

treated bylaw as a fictitious person

Custody

member

Authorized Person (AP): a member of the SDC providing

custody services for investors. AP, i.e., custody member, can,

but does not have to be an exchange member at the same time.

Exchange

member

Authorized Person (AP): an member of exchange providing

trading services for investors. AP, i.e., an exchange member,

has to be a custody member at the same time

Execution

broker

An exchange member providing trading services in respect of

transactions in deposited securities custody services that are

provided by another legal entity — an independent custody

member

Independent

custody

member

A custody member providing custody services if trading services

are provided by the execution broker

SARIENational real-time gross settlement (RTGS) payment system,

operated by SAMA, that facilities cash settlement for the SDC

SDC

The Central Securities Depository (CSD) of Saudi Arabia

performs securities settlement and cash netting, safekeeping

and registry functions. SDC operates end beneficial accounts

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© 2017 EYGM Limited.

All Rights Reserved.

EYG no. 05176-172Gbl

ED None

This material has been prepared for general informational purposes only and is not intended

to be relied upon as accounting tax or other professional advice. Please refer to your

advisors for specific advice.

ey.com/mena

Partner, Transaction Advisory Services Leader, Saudi Arabia

Entity: Ernst & Young & Co. (Public Accountants)

Email: [email protected]

Phone: +966 50 5265042

Abdulrahman Moulay Albizioui

Principal –Transaction Advisory Services, Jeddah, Saudi Arabia


Phone: +966 54 1577864

Mohsin Iqbal

MENA IPO Leader, Transaction Advisory Services


Phone: +971 56 5035085

Gregory Hughes

mailto:[email protected]









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