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Friday Letter Saudi bull

As world markets tumble, one firm in Saudi Arabia believes now is the right time to break ground on the world’s first 1km tower. 

No question about it, this week saw global markets go bear-shaped.

From the up-to-eleventh hour uncertainty over whether the US would raise its debt ceiling or default, through further Eurozone sovereign debt panics and culminating in a widespread fear of the next global recession, it is little wonder investors are running scared.

So, assuming your eyes have had their fill of reading about macroeconomic turmoil, we’re going to conclude the week by throwing the spotlight on a company that chose now of all times to announce it is poised to start constructing the world’s first kilometre tall tower.

The bull among bears in question is Kingdom Holdings, the investment company of Saudi prince Alwaleed bin Talal Bin Abdulaziz Alsuad which announced Tuesday it would ‘begin construction imminently’ on the Kingdom Tower in Jeddah at a whopping estimated cost of $1.2 billion.

As if we had taken a ride in Back to the Future’s time-travelling DeLorean, we have been served up a throwback to the heady, pre-‘08 days when neighbouring Dubai was ever becoming the architects’ playground. Upon completion, this monolith is expected to exceed the height of Dubai’s Burj Khalifa, the 828-metre tower in Dubai which completed early last year and currently holds the crown as the world's tallest building.

Perhaps pre-empting the inevitable doubters, Al-Waleed: nephew to Saudi ruler King Abdullah, to whom the ‘vision’ for the tower apparenely ‘belongs to’, declared: “This project will provide sustainable profits to Kingdom Holding shareholders.” Unfortunately, the financing details for the scheme, the first phase of a 5.3 million square metre, $20 billion urban development called Kingdom City, were lacking in the announcement although the firm did say it would share the costs with local investors, divulging their names and stakeholdings.

Though little tangible information on Kingdom Holdings’ business plan for the tower is readily available it nonetheless appears such limited disclosure has done little to dent the enthusiasm of public market investors on the Riyadh Bourse. The share price of Kingdom Holdings, of which incidently a mere 5 percent is available on freefloat, jumped 2 percent on the news – as the rest of the world’s listed companies were shedding value at an alarming rate.

If you’re looking for further substantiation that this project is viable, that’s as good as it gets at this stage we're afraid folks, not withstanding various property agent’s reports. Jones Lang LaSalle, for example, revealed in a recent investor sentiment survey that Saudi investors expect to make, on average, a 10 percent gain over the next 12 months – ‘far exceeding expectations in other Middle East markets’.

It’s hard to know at this stage if the Kingdom Tower project will indeed provide the ‘sustainable profits’ it is promising. But in a week when the bears have taken centre stage, we thought the sound of a fast-charging Saudi bull would provide just the right tonic.