(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Una Galani
DUBAI, March 19 (Reuters Breakingviews) - The controversy over the true value of Prince Alwaleed’s investment vehicle has some simple remedies. Kingdom Holding (4280.SE), with stakes in everything from Citigroup (C.N) to Twitter, is at the centre of a bitter row with Forbes magazine over the exact size of the prince’s wealth. Part of the problem is that the Riyadh-listed company suffers from a tiny free float, limited liquidity, and puzzling share-price movements.
Kingdom has a listed value of $19 billion but only a 5 percent free float in a market where 30 percent is closer to the norm. Alwaleed wanted to list up to one third when it went public in 2007 but the firm and the regulator agreed at the time that it would be too much for the market to absorb. The problem is that stocks with small free floats are more susceptible to share-price volatility or even market manipulation.
The prince’s flagship firm is actively exploring its options to become a more liquid stock, according to a person familiar with the company’s plans. One way would be for Alwaleed to sell down. But that would look bad in the wake of the clash with Forbes and would send the wrong signal about Kingdom’s value.
Alternatively, Kingdom could sell some new shares. The difficulty here is that the firm doesn’t have an urgent need to raise cash and can ill afford to run an inefficient balance sheet.
Kingdom could of course issue stock in support of a big deal. The snag is that it would have to be a sizeable acquisition to result in a meaningful dilution of Alwaleed. And the target might be loathe to take paper whose value is the subject of such a fraught debate. Still, investment banks could be hired to conduct an independent valuation.
The radical option would be to delist. That would be the least palatable for the prince. Fading into the background isn’t Alwaleed’s style and risks being perceived as failure in a region where initial public offerings are a symbol of pride. But if an illiquid free float is causing such difficulty, it is hard to see how the listing’s benefits outweigh its costs.
- Saudi Prince Alwaleed bin Talal and his flagship investment vehicle, Riyadh-listed Kingdom Holding, said on March 5 that it had severed ties with Forbes’ billionaires list after a row over the prince’s net worth.
- Forbes magazine subsequently published a lengthy investigation into Kingdom Holding. The prince controls 95 percent of Kingdom’s shares.
- The magazine said: “We value his [Alwaleed’s] Kingdom Holding stake at $10.6 billion, or $9.3 billion less than what the market cap suggests”.
- Shadi Sanbar, chief financial officer of Kingdom, said: “KHC puts a premium on tracking the true value of our investments and it is contrary to both our practice and nature to assist in the publication of financial information we know to be false and inaccurate.”
- Kingdom was listed in 2007, and holds stakes in Citigroup and Twitter.
- Forbes: Prince Alwaleed and the curious case of Kingdom Holding stock link.reuters.com/gek76t
- Kingdom Holding press release link.reuters.com/hek76t
- For previous columns by the author, Reuters customers can click on [GALANI/]
(Editing by Chris Hughes and Sarah Bailey)
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