The Strategist

Saudi Arabian stock exchange opens up to foreign cash

08/19/2016 - 15:36

Saudi Arabia has allowed foreigners to participate in IPOs on the country's only stock exchange Tadawul. The largest in the Gulf and one of the most closed markets starts to accept foreign investors in 2017.

Rafael Matsunaga
Rafael Matsunaga
Saudi Arabia has allowed foreign investors to participate in IPOs of companies on the local stock exchange Tadawul. As reported on the website of the local regulator, the resolution will come into force from January 1 next year.

According to media reports, the local regulator approved appropriate instructions. According to them, list of persons, entitled to participate in the bidding, now includes qualified foreign investors. With the permission of the issuer, financial advisors can use these instructions to any issue to January 1, 2017.

Saudi Arabia is the largest stock market of the Persian Gulf. Its capitalization as of August 18 exceeded $ 384 billion. Tadawul, the country’s only stock exchange, occupies the 11th place by market capitalization in the world. Previously, it has been one of the most closed to foreign players.

In the last 2 years, the price of oil, proceeds of which account for almost 90% of the kingdom's budget, fell by half. Seeking a new source of money, the country's authorities have decided to liberalize the stock market among other measures to improve the country’s financial situation.

In June 2015, Riyadh allowed foreigners to participate in bidding to a limited extent. In particular, only investors, whose candidacy was approved by the local regulators, are permitted to buy shares. Size of investments is also determined by the regulator. In particular, the law forbids foreigners from owning more than 50% of shares of local companies. In September this year, Riyadh intends to loosen the criteria for candidates to participate in the auction.

According to Bloomberg, IPO of Saudi Aramco can be held in the next year. The country is planning to place less than 5% of the company’s shares. According to Crown Prince Salman bin Mohammed Al Saud, Head of the Economic Council of the Government (the body responsible for privatization), Saudi Aramco may be estimated at $ 2-2.5 trillion, and can become the most expensive company in the world. Even sale of 1% of its shares would be the largest IPO in history.

"It will be hard for local investors to accept all these partial privatizations planned by the government. In particular, this applies to Aramco", - Bloomberg quotes Fahd Iqbal, Head of Middle East Research, Private Banking at Credit Suisse.