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Saudi Arabia Plans new IPO Pricing System

Saudi Arabia is introducing a system of book-building to allow investor demand to determine the price of shares sold in initial public offerings. Investor demand plays relatively little part in the pricing of IPOs in the Gulf Arab region. In Saudi Arabia, a company either sells shares at a nominal value of 10 riyals ($2.67) or at a higher price set with its advisers before the IPO opens.

"From now on, any company that is floating shares will be subject to this new system...of book-building," Al-Jazirah newspaper quoted Abdulrahman al-Tuwaijri, head of the Capital Markets Authority, as saying in an interview. "It will no longer be up to the authority or the financial adviser to get involved...but up to the market and the people interested in buying," he added, according to the paper.

Jazirah did not give details of the book-building process, which usually involves the IPO's lead manager tracking demand for shares after announcing the range of prices in which it expects to sell them. The actual price is determined at the end of the book-building period.

Tuwaijri's spokesman Abdulaziz Alzoom could not be reached for comment on the story.

The Capital Markets Authority is already applying the new procedure to a company that plans to sell shares, the paper quoted Tuwaijri as saying, without giving details.

Saudi Kayan Petrochemical Coampany secured approval from Capital Markets Authority on Wednesday to sell $1.8 billion of shares this month in what will be the second-largest Gulf Arab initial public offering. Kayan, 35 percent owned by state-controlled Saudi Basic Industries Corp., will offer 675 million shares at 10 riyals each between April 28 and May 7.

The pricing of Saudi IPOs came in for criticism after a crash halved the value of the largest Arab stock market between February and May last year, stinging many retail investors. Investors had snapped up new share offerings during an equity boom in the previous two years, in some cases paying astronomical prices for what eventually became worthless stock. - Reuters

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