Saudi Arabia Further Eases Rules for Foreign Investments — Update

By Ahmed Al Omran 
 Stock Market Quotes, Business News, Financial News from

RIYADH–Saudi Arabia on Wednesday said it will further ease restrictions on foreign investments in its $393 billion stock market next month as the kingdom aims to attract more foreign capital to wean its economy away from its dependence on oil.

The new rules will allow foreign investors to own larger stakes in listed companies and lower the minimum value of assets foreign institutions are required to manage to qualify to invest.

The Capital Market Authority, which regulates the local stock market, said the amended rules, which were proposed in May, were approved by its board and will come into effect Sept. 4.

Originally planned for mid-2017, CMA Chairman Mohammed al-Jadaan told The Wall Street Journal last month that Saudi Arabia would push for these changes to come faster and could be implemented this year.

Under the amended rules, foreign institutional investors with at least 3.75 billion Saudi riyals ($1 billion) in assets under management would be allowed to obtain a license to invest in Saudi stocks, cutting the threshold from 18.75 billion riyals.

The regulator will also double the limit on individual foreign ownership of shares in a single company from 5% to 10%, and it will allow more types of institutions to invest in the market, including sovereign-wealth funds and university endowments.

The CMA and Tadawul, as the Saudi stock exchange is known, have taken several steps this year in an effort to attract more foreign investment, including plans to move away from a same-day trading settlement system to instead clear trades within two working days, which foreign investors prefer.

Saudi Arabia announced a wide range of economic reforms in April with the long-term goal of reducing the kingdom’s dependence on oil. The plan, known as Vision 2030, includes growing non-oil industries and attracting more foreign investors.

The kingdom opened its market to direct investment by international institutional investors in June 2015, but their interest in Saudi Arabia’s listed companies has, so far, been lukewarm. Currently, foreign investors own under 1% of the market by value.

The decision by the CMA to expedite the implementation of the amended investment rules reflects worries over slow economic growth as the kingdom tackles the impact of low oil prices, said Mohammed al-Suwayed, head of capital markets at Adeem Capital.

“The Saudi economy growth is slowing, which was obvious from the numbers of the first quarter GDP, and there is a fear that the second-quarter GDP might confirm [that],” he said. “The slowing of growth, or maybe a possible recession, could drive the IMF to review the economy growth in 2016 and lead the credit rating companies to downgrade the Saudi rating.”

Saudi economic growth in the past decade has largely depended on government spending at home, but that has slowed in the last two years as oil prices tumbled.

Accelerating the implementation of the amended rules will also help boost the Tadawul’s chances of winning the emerging-market tag from index providers such as MSCI Inc. This can result in attracting millions in additional inflows from funds that use the benchmarks.

The CMA said the amended rules would apply to all listed securities, an indication of the kingdom’s plan to grow its debt market, an area which the regulator said remains vastly underdeveloped.

Write to Ahmed Al Omran at Ahmed.AlOmran[a]

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