Homecoming
The SR4.57bn (US$1.2bn) IPO of Saudi Arabia's ADES marked a significant development for ECM in the country as investors were persuaded to use more growth-oriented valuation metrics, significant allocations went to international investors and it saw relatively rare use of primary issuance for fundraising.
Much was made in 2023 of companies opting to list on exchanges away from their country of origin, while ADES was returning home having delisted from the London Stock Exchange in 2021.
In addition, the US$1.2bn IPO was the largest ECM transaction of the year in the country and proceeds went towards deleveraging the company to repay acquisition-related debt.
A crucial part of the transaction was a need to push local investors away from the typically used trailing 12 months price-to-earnings ratio to instead value the drilling services company on the basis of the forward-looking 2024 EV/Ebitda multiple.
"The market initially looked at the company as overleveraged," said Zaid Ghoul, head of investment banking at SNB Capital, which acted as a global coordinator. "During the investor interaction we focused on highlighting the importance of looking at forward earnings to bring investor attention to the fact that a good portion of the IPO proceeds will be used to deleverage the balance sheet, which will reduce interest burden and therefore present a more relevant net income number to use in valuation analysis."
Following extensive pilot fishing, over 100 analyst meetings were conducted during six days of pre-marketing.
The offer was successful in attracting US$76.5bn of institutional demand leaving this tranche 63 times subscribed with demand for the 10% retail tranche almost as big as the entire deal.
International demand proved a notably large part of the book with these accounts being rewarded with around 27% of the deal, compared to typical levels of around 15% allocation.
"PIF [Saudi Arabia's wealth fund] was adamant on this case to move [international allocation] to the upper end," said Mostafa Gad, head of investment banking at joint global coordinator EFG Hermes. "We showed the international community that there is progress because they got much better allocation on ADES than on previous deals so they’re much more optimistic about the future and coming deals."
Goldman Sachs and JP Morgan were also joint global coordinators.
According to Ghoul, international participation was one of the highest since Aramco in 2019 with the deal notably attracting strategic names.
"ADES witnessed large GCC and international demand and played a role in reinforcing Tadawul as a leading regional market and destination for capital to be deployed," said Ghoul.
Achieving a first-day pop is a key marker of success in Saudi markets and ADES was no exception, hitting the 30% daily limit on debut.
Its shares have continued to rise, beginning 2024 at nearly SR26 versus top of the range SR13.50 pricing.
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