Jeddah: Despite investor confidence being at a low ebb due to the fall in stock prices and suspension of shares of two companies last week, Advanced Polypropylene Co. (APPC) made a strong debut on the Saudi stock market yesterday.
The SR10 APPC shares, which are trading in the industrial sector, jumped 77.50 percent on the first day of trading to close at SR17.75. The shares opened at SR18.50 and reached as high as SR19.50 and as low as SR15.75 during the day before settling at SR17.75.
APPC completed the initial public offering successfully last month when 3.08 million Saudis subscribed to APPC shares investing a total of SR1.67 billion. The APPC's IPO was oversubscribed by 252 percent. The Saudi Capital Market Authority (CMA) suspended trading in shares of Bishah Agriculture Development Co. and Anaam International Holding Group for incurring heavy losses.
Mohamed Ramady, professor of finance and economics at King Fahd University of Petroleum and Minerals, told Arab News the sharp rise in the first day's trading value of the APPC shares was to be expected, given the recent sharp falls and negative sentiment in current listed stocks, as well as a flight to perceived "quality" stocks in new IPOs. "The actions of the CMA, to rightly suspend share trading in two companies whose capital has diminished below the required minimum for joint stock companies, has added to the general market nervousness," he said.
However, Ramady added: "The CMA should also consider the way shares are priced in IPOs, and move toward a more flexible book-building pricing instead of the current fixed pricing of IPOs. The latter has led to some undervaluation of new IPOs and massive first day gains on fixed pricing, adding to volatility in existing listed shares." According to Ramady, such a system will avoid first day price excesses, market volatility and price distortions following profit taking, after the initial IPO listing excitement has worn off.
Despite a strong debut by APPC, the Saudi stock market dropped yesterday. The Tadawul All-Share Index (TASI) fell 71.64 points yesterday to close at 7,143.99.
By Khalil Hanware
Arab News 2007
