Thousands of Qataris cashed in this morning by cashing out their stock in Mesaieed Petrochemical Holding Co. during its first day of public trading, as buyers bid up the company’s share price by 450 percent.

Shares in the firm – a subsidiary of Qatar Petroleum (QP) – were sold in an initial public offering restricted to Qatari citizens last month for QR10 (US$2.75). The stock climbed as high as QR73.90 ($20.29) on Wednesday, before ending the day at QR55 ($15.10).

Analysts have offered several explanations for Mesaieed’s dramatic debut as a public company, starting with the argument that the IPO price greatly undervalued the company.

Hypotheses

“The IPO was at QR10, which is a significant discount to what this company is worth …This is a solid petrochemical, QP-backed company,” Bobby Sarkar, head of research at Qatar National Bank Financial Services, told Bloomberg News.

Before the listing, Ahmed Shehada – head of trading at QNB Financial Services – said analysts valued the stock at between QR18 and QR21 riyals, according to Reuters.

Another possible reason is that Wednesday was the first opportunity for foreigners – who are collectively allowed to own up to 15 percent of the shares sold during the initial subscription period – and most institutions to buy Mesaieed stocks.

This added demand would have pushed prices up.

There would also likely have been interest among Qataris who found themselves shut out from the initial offering or unable to buy their desired number of shares.

The IPO was five times oversubscribed – meaning demand vastly outsripped the supply of shares – which forced Mesaieed to cap the distribution to 1,633 shares per investor.

Savings plan

With more than 11 million of the 323 million common Mesaieed shares trading hands on the first day of trading, it seems some Qataris have opted to turn a quick profit, instead of holding onto the shares as a long-term investment, as the government had hoped.

“QP’s main objective with this IPO was to encourage long-term investment among Qataris by retaining their shares for long periods of time and therefore reaping the benefits of long-term investment,” said Mohammed Bin Saleh Al- Sada, Qatar’s Energy Minister and the chairman of Qatar Petroleum, in a statement following the close of the IPO.

Before markets opened, the Peninsula quoted an unnamed banking industry source as saying that some Qataris would have to to sell off their stocks to repay the loans used to fund their initial purchase.

Banks were reportedly willing to lend 100 percent of the money that would-be Qatari investors needed to buy shares. According to the newspaper, banks were recently instructed to ease the repayment terms of those IPO-related loans.

While it’s not clear how many investors took on excessive debt to buy shares, it’s likely not the scenario government officials had hoped for when they announced plans to sell off 25.725 percent of Mesaieed as a way of increasing the savings rate in Qatar.

Like residents in neighboring Gulf countries, most citizens and expats here fail to regularly put money away for a rainy day.

To encourage Qataris to hold onto their stocks of the state enterprise for the long-term, each investor that participated in the IPO will receive a free “incentive share” for every stock they own.

Half of these shares will be distributed on the five-year anniversary of the IPO, and the remaining 50 percent will be handed out in February 2024 – 10 years after Mesaieed stocks started trading.

Mesaieed becomes the 43rd company to be listed on the Qatar Exchange and the first in four years.

Separately, the Qatar Exchange said it would be closed on March 2 to observe the official bank holiday that falls on the first Sunday of every March.

Thoughts? Did you participate in the first day of trading?