JEDDAH JOURNAL 6. SAUDI INVESTORS MOB BANKS, 11%

C O N F I D E N T I A L SECTION 01 OF 02 JEDDAH 000171

SIPDIS

SIPDIS

RIYADH, PLEASE PASS TO DHAHRAN; DEPARTMENT FOR NEA/ARPI;
PARIS FOR ZEYA; LONDON FOR TSOU

E.O. 12958: DECL: 02/22/2015
TAGS: ECON EFIN KISL KWMN PGOV PREL SA SCUL EINV
SUBJECT: JEDDAH JOURNAL 6. SAUDI INVESTORS MOB BANKS, 11%
INCREASE IN JEDDAH MUNICIPAL BUDGET, AND REFORM OCCURRING
HERE AND THERE


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Classified By: Acting Consul General Hector Morales, for reasons
1.4 (b) and (d).

INVESTOR FRENZY SNARLS TRAFFIC IN JEDDAH


1. (C) On the evening of February 19, several late-arriving
members of the Executive Committee of the American
Businessmen of Jeddah (ABJ) blamed their tardiness on
unexpected traffic jams in central Jeddah. Executive Council
member and banker Anees Moumina announced that crowds were
surrounding banks, and he warned everyone to avoid the banks
for the next several days. February 20-22 were the first
days in which shares of Yanbu National Petrochemicals Company
(YANSAB),could be publicly traded. YANSAB is the
petrochemicals affiliate of Saudi Basic Industries
Corporation (SABIC). The initial public offering of shares
at SR 50 from December 17 to 29, which was open only to
Saudis, was oversubscribed by some 300%, 8 million Saudis
vying for part of the 35% stake in YANSAB. The first
opportunity to trade shares set off an investment frenzy
among cash-flush Saudi investors. Moumina said that a number
of bank employees had actually been physically attacked by
eager investors as the price fluctuated from an opening in SR
600's and rising as high as SR 750. By Wednesday, February
22, YANSAB had dropped to close at SR 573.


2. (U) Newspapers on Friday, February 24, reported investors
were outraged to find that sales orders given when YANSAB was
near 750 were not executed until a day or even two days later
when the price had declined to about SR 610. Authorities
blamed the market system being unable to keep up with the
vast number of orders.

MORE IPO'S AND A BOOMING ECONOMY HEAT UP (OR OVERHEAT) THE
SAUDI MARKET


3. (C) The current round of IPO's and impending
privatizations, coupled with a booming economy in Saudi
Arabia is fueling a very hot market. On February 22, the
Tadawul All Shares-Index (TASI) broke through the 20,000
barrier, closing at 20,061.65. This week alone, the papers
have announced several IPO's including those involving
portions of SAVOLA Group and Al-Huta Group. Investors
clamoring for stakes in these early IPO's have driven stock
speculation to levels that are irresistible to a cash-rich,
but relatively unsophisticated group of investors. Some
cautious sources have expressed concern that the market may
be overheating and be in for a decline. Articles have
appeared in the media warning Saudis to invest rather than
speculate and offering training courses in what to look for
in investments and what to avoid. At a social event of the
ABJ held at the CGR on February 9, American citizen Jeff
Gorman, an executive adviser at Bin Laden Group, confided to
Pol-Econ Chief that in the last quarter, his mutual fund
investments, the only form of investment available to
foreigners, had increased by 16%. While celebrating every
rise in stock prices, he confessed he was also wary that the
trend could not last indefinitely, and was alert for signs
that the bubble might burst.


4. (C) COMMENT: Share-holding is very wide-spread among the
Saudi population and many state-owned enterprises and
parastatals are being privatized which is an undeniably
encouraging sign of dedication to the free market. Popular
share-holding is consonant with the King's stated desire to
develop an ownership society which feels it has a stake in
the development of a free-market economy. But behind the
exuberance, there is a fear that this boom cannot be
sustained. New stock offerings are being prepared over the
coming months and years, but the public wants in now, leading
to a mad rush, such as cited above, and driving prices for
the early offerings to unjustified levels. A sudden decline
in the market could injure a significant portion of the Saudi
population and undermine the King's effort to give the
general population a stake in a free economy. END COMMENT

JEDDAH MUNICIPAL BUDGET RISES TO SR 660 MILLION


5. (U) In late January, Jeddah mayor, Engineer Adel Faqeeh,
announced that the new annual budget for Jeddah would be SR
660,113,000. This is an increase of SR 68,863,000, or

JEDDAH 00000171 002.2 OF 002


roughly 11.64%, over last year's budget of 591,250,000. The
mayor stated that the budget would provide for increased road
maintenance and improvement to ease traffic congestion,
maintenance of children's playgrounds, historical sites and
graveyards, construction of new municipal buildings, and
improving and maintaining city entry points. In reviewing
the above, it should be noted that roads in Jeddah are in a
deplorable state of repair with many large pot-holes.
Traffic jams are also a fact of life. In "Old Jeddah" a
number of historic buildings are in a state of near collapse
and one did collapse partially in early December.

WOMEN QUIETLY MAKING INROADS IN ALL MALE FIELD


6. (C) In mid-February Abdul Latif Jameel Community Service
Program, the local services charity sponsored by the Abdul
Latif Jameel Group of Companies, announced that it will offer
training courses in electrical maintenance, plumbing and
cellular telephone maintenance to interested women, and
including a promise of immediate employment after graduation.
Since women have never been allowed to practice these crafts
before, this announcement is a tacit indication that women
will now be permitted to do this work.

WOMEN MAY DRIVE AND MEN MAY DRINK IN FUTURE KING ABDULLAH
ECONOMIC CITY


7. (C) During a recent conversation, an American employed by
the chairman of The Bin Laden Group, which is a major
participant in the development of Saudi Arabia's proposed
King Abdullah Economic City project, told Jeddah Conoff that
there is a possibility that King Abdullah Economic City
(KAEC) will be a "free city" in which women will be allowed
to drive and consumption of alcohol will be permitted. Some
influential groups apparently believe that these
"concessions" will be necessary if this project, which is a
key element in the Kingdom's long-term development strategy
is to compete against Dubai. Another, Muslim, Consulate
staff member had also heard that women may be permitted to
drive in KAEC, but expressed surprise at the suggestion that
the Kingdom would ever permit alcohol use. But the employee
also conceded that KAEC will not be a reality for ten years,
and anything could happen in the interim.


8. (C) COMMENT: The two preceding items suggest that the
Saudi authorities are permitting, or not preventing, groups
from instituting reforms quietly or in limited areas. This
may result in reforms coming into practice without a national
debate that would arouse the opposition of conservative
elements. END COMMENT.
Morales