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Abu Dhabi, UAESunday 16 December 2018

Saudi working on regulations to allow strategic foreign investors to own direct stakes in listed companies

Select non-resident investors will be able to hold stakes of 10 per cent or more

State Street Global Advisors is bullish about the pace of the capital market reforms in Saudi Arabia and the kingdom’s inclusion into the major emerging market indexes. Simon Dawson / Bloomberg
State Street Global Advisors is bullish about the pace of the capital market reforms in Saudi Arabia and the kingdom’s inclusion into the major emerging market indexes. Simon Dawson / Bloomberg

Saudi Arabia plans to work on issuing regulations that will allow select non-resident strategic foreign investors to own direct stakes in listed companies, as the kingdom seeks to attract more international inflows into its US$440 billion stock market.

The kingdom’s Capital Market Authority and the Saudi Arabian General Investment Authority (Sagia) have signed an agreement of co-operation to collaborate on setting up the regulatory framework for directly opening up the stock market to strategic foreign investors.

Non-resident strategic foreign ownership refers to stakes of 10 per cent or more of a company’s share capital that has voting rights, excluding sectors prohibited by law.

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“These directives will serve to set up an agreed upon regulatory framework, through which strategic foreign partners who enjoy the required experience and expertise, and who will contribute to transferring knowledge and technical know-how are attracted; thereby opening up new markets for companies listed on the exchange, and allowing them to realize their full potential,” Sagia said Sunday.

Saudi authorities have been gradually opening up the Arab world’s biggest bourse to foreign investors as it seeks international money for its equities.

Qualified foreign investors (QFIs) have been allowed to directly own Saudi equities from 2015. Regulations were further relaxed last year as the country embarked on a new programme aimed at weaning the kingdom off oil.

Under Saudi QFI rules, investors are allowed to own a stake of just under 10 per cent of a single company. QFIs must have a minimum of 3.75bn Saudi riyals (Dh3.67bn) of assets under management.

The prospective new regulations follow other significant market reforms, including the introducton of short-selling and a change in the settlement cycle, that have been introduced to attract foreign investment and facilitate Saudi Arabia’s inclusion on international indices, such as the widely-tracked MSCI Emerging Markets index, which is expected to happen in 2019.

Saudi Arabia was excluded from FTSE Russell Emerging Markets Index in its annual review of country classification at the end of September, leaving the kingdom to wait a little longer to benefit from an estimated $4.4bn of passive flows.

“The CMA further indicated that the planned directives will be different from its notable QFI Rules in terms of scope and application, as they will be catered for strategic foreign partners looking forward to owning 10 per cent or more in a listed company’s share capital, and this arrangement, through the planned directives, will not be exclusive to financial institutions,” said Sagia.

The kingdom is undertaking a series of measures, including the initial public offering of its stock exchange, known as Tadawul, and Saudi Aramco, the world’s biggest oil-producing company, to help woo foreign investment and diversify its income away from oil.

These measures fall under Vision 2030, which is a masterplan to end the kingdom’s dependence on oil.
“The kingdom is currently undergoing great efforts to diversify its economic base and further develop its investment environment, as indicated in its serious steps to restructure its economy in line with the national transition plan,” said Mohammed El Kuwaiz, the chairman of CMA’s board of commissioners.