Tadawul, IPOs and the reputation race

The CMA’s major goal is to enhance the Saudi stock market globally and make it the most important in the Middle East

  
A man walks at the Saudi Stock Exchange (Tadawul) following the debut of Saudi Aramco's initial public offering (IPO) on the Riyadh's stock market, in Riyadh, Saudi Arabia, December 11, 2019. Image used for illustrative purpose.

A man walks at the Saudi Stock Exchange (Tadawul) following the debut of Saudi Aramco's initial public offering (IPO) on the Riyadh's stock market, in Riyadh, Saudi Arabia, December 11, 2019. Image used for illustrative purpose.

REUTERS/Ahmed Yosri

The Capital Market Authority (CMA) wants to encourage private companies to list on the Saudi Stock Exchange (Tadawul), establish the parallel market Nomu, and develop regulatory principles in order to encourage foreign companies to offer shares and raise capital before 2023. The CMA’s major goal is to enhance the Saudi stock market globally and make it the most important in the Middle East.

The number of firms registered on Tadawul has increased by 130 percent in 20 years, and many companies are on the CMA’s waiting list to be listed on the main or Nomu stock market. Other companies in the region have gone public, including the Saudi Telecom Co. in 2002 after selling 60 million shares to Saudi citizens, and Aramco, which went public late last year after selling 1 billion shares to Saudis. This provided strong incentives for investors and businesses to enter the market.

Saudi small and medium enterprises entering the market, corporations increasing their current asset worth, and government backing will all contribute to a shift in Saudi companies’ stock market and business readiness at all levels.

Benchmark

In the UK, following the Brexit drama, businesses and investors became more hopeful about the future of their investments. Donald Trump’s election as US president created concerns in global markets. Unfortunately, the coronavirus pandemic struck the global economy in 2019. For a long time, businesses and governments were helpless to provide remedies. Some businesses took advantage of the opportunity and tried to gain reputational capital to compensate for tangible value, through investments in internal infrastructure, innovative communications and resolving longstanding challenges.

Others were unable to stay afloat.

REITs

In 2008, in the aftermath of the global financial crisis, UK Real Estate Investment Trusts (REITs) lost nearly 40 percent of their net asset value, recovering by just 19 percent by 2012. “Investors in REITs appear to be losing faith in traditional asset appraisals as doubts about their accuracy and relevance have grown,” according to a 2013 study. Companies’ corporate reputations, defined as “the combined thoughts, sentiments and perceptions of the business as an operating entity,” are becoming increasingly important in terms of

investment potential. The study found that reputation accounted for around 18 percent of a REIT’s market value in 2009, rising to 22 percent in 2012. According to the reputation dividend report published in 2018, the reputation value of the FTSE 350 was £1,062 billion, an increase of 8 percent year-on-year.

Are Saudi businesses prepared for the reputation race?

Recently, there have been worthy public relations and communication efforts, and acknowledgement of the importance of brand equity and reputation contribution. The entry of international enterprises with distinct mentalities and interests could jeopardize Saudi companies’ market position. Foreign investors, on the other hand, have different investment decision criteria than local investors, which has a significant impact on decision-making.

According to a survey, investors react in a number of ways when a company issues a profit warning. Financial considerations are important for 28 percent, while 16 percent believe it results in a loss of trust in leaders. Twelve percent are concerned that there will be more bad news to come, and 8 percent have doubts about the company’s recollection of events.

• Dr. Huda bin Saedan is a reputation strategist, assistant professor of public relations and marketing communication at King Saud University, the rector’s consultant at Princess Nourah bint Abdulrahman University, and a board member of the Association for Media and Communication.

Twitter: @drhudasa

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