Market sentiment shifting
Saudi valuations to lower
Flynas’s share price struggles since listing on Riyadh’s bourse this week may mark the beginning of lower valuations for Saudi Arabian initial public offerings, although further flotations are still likely this year.
The Riyadh-based budget airline, which raised $1.1 billion selling 30 percent of its stock at SAR80 per share, fell on its bourse debut on Wednesday.
The shares rebounded slightly on Thursday but nonetheless ended the week at SAR77.40, down 3.3 percent versus the IPO price.
The listing came at a difficult time, with the wider Saudi share index slipping to a 20-month low in June following a marked downturn in the petrochemicals sector, worries about banks’ lending margins, weaker oil prices and wider geopolitical tensions in the Arabian Gulf.
After 15 offerings last year raised $4 billion, market expectations were for 2025 to be another strong year for IPOs.
However, the poor performance of Flynas – the second successive debutant to suffer a first-day share price decline after United Carbon Industries Co last month – could convince other companies planning to go public to lower their valuations.
“Sometimes the IPOs (in Saudi Arabia) were priced to perfection,” said Nishit Lakhotia, head of research at Bahrain’s Sico Bank, “with the expectation that the market will take it at any value.”
United Carton Industries Co’s stock has fallen 32 percent since listing on Riyadh’s bourse on May 27. Two days after its bourse debut the company reported a first quarter profit of SAR18.7 million ($5 million), down 46 percent year on year and far below its guidance.
“If a company forecasts it will make a certain profit and then misses that significantly, it’s normal for the stock to then underperform,” said Aqib Elahi Mehboob, head of sell-side research at BSF Capital in Riyadh.
Prior to UCIC, the previous four companies to list on the bourse after completing IPOs rose the maximum 30 percent permitted on the first day’s trading.
Newly listed companies in 2024 performed similarly well, with 11 of the 14 largest IPOs recording gains of between 3 percent and 147 percent by the start of 2025.
“Last year there were hardly any failures in terms of IPO debut,” said Lakhotia. “This is changing now.”
At market close on Thursday, five of the seven companies which listed this year were trading below their offer prices. AGBI columnist Matein Khalid warned earlier this week of a “prolonged unravelling” of Saudi IPOs.
Flynas is the first airline to list on the Tadawul and its flotation comes at a time when the government is investing billions of dollars in aviation infrastructure as part of its target to attract 300 million passengers annually to the country.
The airline’s IPO, the Gulf’s biggest this year, was highly anticipated. “As the regional risk level dissipates, we should get a better indication of how Flynas’s stock will perform,” said Mehboob.
“It’s a very well-run airline. It has the regional aviation industry’s youngest fleet and has a significant domestic market. Also, it’s always easier – whether you’re a retail or an institutional investor – to invest in something which you use and understand.”
No companies that have announced intentions to go public have said they will pause their flotations, although IT company Ejada’s approval to launch an IPO expires on June 23 unless it publishes a prospectus by this date.
Ejada is one of four companies the Capital Market Authority has authorised to conduct an IPO. Dozens more have submitted requests, according to the CMA.
“More generally, it’s a tough environment right now to bring large IPOs to the market, but the pipeline of small to medium-sized IPOs will come through,” Mehboob said.
“Larger IPOs are unlikely until at least late in the third quarter, partly due to geopolitics but also because it’s summer and markets are usually quieter at this time of year.”
