Saudi Stock Exchange Relaxes Ownership Limits For Foreign Investors

There will be no minimum or maximum ownership limit, although the owners must hold the shares for two years before they can sell.

BE2C2 Report — Saudi Arabia has relaxed a 49% limit for foreign strategic investors in shares of listed companies (publicly traded firms), it said on Wednesday.

New rules, released on Wednesday, will for the first time allow non-financial companies to invest in firms listed on Riyadh’s Tadawul stock exchange, as well as allowing overseas investors to take controlling stakes.

The country which has introduced a raft of reforms in recent years, aims to to make its stock market (valued at $560 billion) the region’s biggest and attractive to foreign investors and issuers.

The move will help “enhance the market’s efficiency and attractiveness and to expand the institutional investments base,” the regulator, the Capital Market Authority (CMA), said in a statement on its website.

There will be no minimum or maximum ownership limit, although the owners must hold the shares for two years before they can sell.

Foreign investors can take stakes in listed companies by buying shares directly on the market, or through private transactions and via initial public offerings.

In April, the CMA chairman Mohammed El Kuwaiz had told Reuters the CMA plans to relax limit on foreign strategic investors due to increased demand. 

The Saudi stock market, which opened to foreign investors in 2015, has seen an upsurge in foreign fund flows since the start of the year due to the inclusion in the emerging markets indexes.

Foreign investors have been net buyers of Saudi equities over the past few months, with purchases worth $13.6 billion as in May 30.

And the flow of money looks set to balloon further, according to a recent research, report Forbes. The “potential allocation from active investors could reach up to $40 billion in years to come,” the research report states.

In May, Saudi stock market got included in the MSCI Emerging Markets index, a key benchmark followed by the financial community across the globe. Local shares were incorporated into the FTSE emerging-market index in March.

Around $17bn of passive inflows are expected through March next year, the Financial Times reports.

The country’s Tadawul All-Share Index .TASI is up 11 percent year-to-date after hitting almost four-year highs last month as foreign buying raised valuations.

According to FT, global investors say they are impressed by the pace of capital markets deregulation.

“The changes are designed to encourage more foreign flows into the market,” said Mazen Al Sudairi, head of research at Al Rajhi Capital. 

The country has introduced a raft of reforms in recent years to make its economy shift from oil based on foreign investment, localization of manufacturing and Saudization in line with Vision 2030 introduced in April 2016.

Foreign direct investment (FDI) bounced back from a low of $1.4bn in 2017 to $3.2bn last year.

(BE2C2 Report is a data journalism initiative of Irshad Salim Associates, NJ, USA)