Performance of 2025 IPOs one year after listing
Performance of 2025 IPOs one year after listing

The initial public offerings (IPOs) sector on the Saudi Exchange (Tadawul) has attracted significant regulatory and analytical attention after press reports indicated that the Capital Market Authority (CMA) had opened lines of inquiry and investigation with local and international investment banks.
The review focused on scrutinizing valuation and book-building mechanisms against the backdrop of the sharp decline in shares of most companies listed during 2025: six out of seven companies ended their first year below their offer price, with average losses approaching 27%.

Against this backdrop, Equity Hub held a discussion session addressing the structural and historical roots of the valuation crisis and the future of pricing efficiency in the main market.

The paradox of institutional oversubscription and fair-value limits

The 2025 IPOs recorded exceptional subscription levels from funds and institutions, exceeding 200 times in some cases, as in the IPO of "Entaj," and 100 times in the "flynas" IPO. However, this short-term institutional appetite did not prevent the shares from falling sharply by between 24% and 51% after listing.

Student Yousef Fares @Yousef Fares explained that a high subscription ratio is not necessarily an indicator of pricing efficiency or proximity to fair value; rather, it often reflects short-term investment appetite or rapid reallocation strategies.
He stressed that an IPO’s success should be measured by the share’s potential for future operational and price stability, calling for greater transparency in disclosing the financial assumptions on which financial advisers base their valuations.

For her part, colleague Abeer Altuwaijri @Abeer Altuwaijri pointed to the need to distinguish between the impact of broad market pressures—such as the 12.8% decline in the Tadawul index and an approximately 30% drop in liquidity—and flaws in initial pricing. She emphasized that the financial performance of newly listed shares showed a notable overstatement in their initial issue prices. Student Rimas Almashali @Rimas Almashali agreed, stressing the importance of a more mature investment perspective that balances share valuation against fluctuations in overall liquidity.

Disconnect between operating results and price behavior

Financial analysis of listed companies revealed a disconnect between operating performance and price behavior in subsequent trading. United Carton Industries nearly doubled its profits, yet its share fell by 50%, while the share of Umm Al Qura for Development and Construction (Masar) rose by 8% despite a decline in its quarterly profits.

Student Mohammad Alghaihab @Mohammad Alghaihab said that institutional oversubscription reflects only the volume of immediate demand at the time of the offering and does not guarantee its sustainability.
He noted that valuations based on excessively optimistic growth expectations leave shares vulnerable to rapid correction once they collide with the reality of cash flows and actual liquidity levels.

For her part, student @ثناء الشايب said a successful IPO should strike a balance between delivering an attractive return to the selling owner and providing expected upside for the new investor. She explained that exhausting the company’s entire fair value during the initial pricing process deprives the share of stability and weakens market participants’ confidence over the long term.

Reforming the incentive structure and the historical shift in pricing

In an analytical presentation focused on addressing the regulatory roots of the issue, student Rana Alshamrani @Rana Alshamrani proposed combating overvaluation by restructuring financial advisers’ incentives.
Alshamrani explained that concentrating IPO-arrangement fees on completing the transaction at the highest possible valuation creates a conflict of interest. She proposed linking part of the fees to future share performance (Deferred Fees) for periods ranging from 6 to 12 months after listing, thereby aligning the interests of IPO arrangers with pricing efficiency and market stability.

In a historical reading of the issue’s dimensions, colleague @يزيد الحميضي reviewed the shift in the regulatory rules of the Saudi market.
Based on an academic study published by King Saud University by researchers (Samontaray & Al Zuwidi, 2023), Saudi-market IPOs during the period 2010–2021 were found to be underpriced by an average of 49.4% (Underpricing), making them a speculative instrument that generated immediate gains upon listing.

Al-Humaidhi noted that regulatory decisions issued by the Capital Market Authority in 2017 and 2023 to develop book-building mechanisms shifted pricing toward the upper end of the valuation range, eliminating the historical phenomenon of the "pricing discount" and transferring valuation risk entirely to subsequent trading in the secondary market.

Are IPOs Underpriced? Empirical Evidence from Saudi Arabia

Participants in the Equity Hub session agreed that addressing the subsequent underperformance of stock IPOs requires improving governance quality and structural transparency, rather than relying on procedural solutions such as merely extending lock-up periods. The key recommendations are:

  • Restructure financial advisers’ fees: Link a portion of fees to share stability and the alignment of price performance with fair value during the first year after listing.
  • Transparency of valuation assumptions: Align disclosed valuation methodologies with prevailing liquidity conditions and avoid relying exclusively on optimistic growth rates.
  • Develop book-building mechanisms: Review the rules governing pricing ranges and institutional allocation ratios to ensure efficient discovery of the true price (Price Discovery).