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Jammaz Al-Suhaimi: unceremoniously replaced |
The lessons of Jammaz Al-Suhaimi’s demise
Al-Suhaimi had struggled to dampen down ill-informed retail buying of speculative stocks at unjustifiably high valuations when the Tadawul All Share Index rose uncontrollably to 20,643.6 this February. When the inevitable market correction turned into a rout in March, he tendered his resignation. This was rejected. Al-Suhaimi was told he was doing good work for the benefit of his country and should carry on.
Seven weeks later he was out: replaced, unceremoniously, by Abdul Rahman bin Abdul Aziz Al-Tuwaijeri, secretary general of the supreme economic council. “It was a total shock,” says a former colleague of Al-Suhaimi, “completely unexpected.”
What had changed?
Simply a scapegoat?
There are two schools of thought. One holds that the authorities simply needed a scapegoat for the failure of measures brought forward in March and April by the supreme economic council – permitting resident non-Saudis to invest, splitting shares to make them look nominally cheaper, talking up future privatizations of good-quality companies – to halt the market’s slide.
The second theory is more sinister. It suggests that Al-Suhaimi’s dismissal might have been engineered by wealthy and powerful stock market manipulators.
Al-Suhaimi told a Euromoney conference in Riyadh in May, just two days before his dismissal, the extent of the challenge the CMA has sought to address since 2004: “Gaps in the market stem from the behaviour of some investors, from lack of transparency, the fact that some companies did not disclose financial statements regularly and were not transparent with certain data. Fair dealing was affected by the dominance of big investors who were very well informed.”
Al-Suhaimi has waged a concerted campaign to rid the previously unregulated Saudi stock market of criminal behaviour undertaken by some of the country’s so-called hamour, the big fish.
“If you could see the list of who they’ve prosecuted, fined, imprisoned… well, it’s quite a list,” says a prominent participant in the Saudi stock market.
Did Jammaz Al-Suhaimi snare one big fish too many? One source says: “Certainly there were people capable of driving the market down to make Jammaz look bad, almost to the point of bringing the market to a standstill.” Another ties the two theories together: “These manipulators used the media to inflame the emotions of small investors who lost out in the crash and drove them to demand their money back from the government. That’s why the government needed a scapegoat.”
On May 11, the TASI hit 10,047, a 51% fall from its high on February 25 2006, sending a shudder through the Saudi financial system. The time had come to offer up a sacrifice.
The market’s first reaction to the news of Al-Suhaimi’s removal was to bounce to 11,837. But 10 days later it was back to 10,147. If the sacking of Al-Suhaimi was meant to revive confidence, professional market participants in Riyadh were having none of it. One says: “Far from doing anything wrong, Al-Suhaimi was the man who tried hard to prevent a bubble, while the government dragged its heels on privatizations and on issuing sovereign debt that could have soaked up some of the liquidity.”
Paralysis
What happens now? “Paralysis,” says one source. “There are IPOs now ready to go just awaiting CMA approval and we have no indication when it might be forthcoming.” It remains to be seen whether Al-Suhaimi had built a regulatory institution strong enough to survive his own dismissal and implicit withdrawal of top-level political support. Another says: “Al-Tuwaijeri is a good man but is seen as a temporary appointment until the autumn. As a politician, his instinct, if the outcome of any course of action is uncertain, will probably be to do nothing. Actually, that may be no bad thing right now.”
Back to square one
One of Al-Suhaimi’s last acts as chief of the CMA was to ask the 15 or so leading banks to review the whole framework of market regulations and offer up proposals for improving IPO procedures. One idea banks are debating is introducing institutional tranches in IPOs to achieve proper price discovery through book-building. This would mark progress for a retail-driven market that has shown itself incapable of pricing risk. The drawback is that, in the absence of foreign institutional investors now barred from the Saudi stock market, domestic institutions in Saudi Arabia might not be capable of calibrating order sizes according to price on the back of fundamental valuations of companies.
There are high net-worth Saudi investors capable of this kind of analysis but allowing them to lead price risks handing the primary market over to the hamour.
“We’re back to square one,” says one depressed sounding broker.
