Alwaleed's Valuation Dispute Has Simple Solutions

Alwaleed’s Valuation Dispute Has Simple Solutions

Reuters columnist discusses possibly remedies for the row between Prince Alwaleed and Forbes

March 19, 2013 4:48 by kippreport

By Una Galani - (The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

The controversy over the true value of Prince Alwaleed’s investment vehicle has some simple remedies. Kingdom Holding, with stakes in everything from Citigroup 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 loath 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.