Saudi Arabia overhauls foreign ownership regulations for listed firms

Saudi Arabia has announced an overhaul of foreign ownership regulations for listed companies, as it seeks to encourage participation by international institutional investors in a wide ranging programme of privatisations.

The country’s Capital Market Authority (CMA) has also approved a request by the Saudi bourse to relax settlement cycles for investors, making the country’s inclusion in the widely tracked MSCI Emerging Markets Index more likely from next year.

The CMA announced on Monday that it was widening the definition of Qualified Financial Investors (QFI) to include financial institutions such as sovereign wealth funds and university endowments as well as banks.

The regulator also said that the minimum value of assets under management for QFIs will be reduced to SR3.75 billion (Dh3.67bn), compared with the current level of SR18.75bn.

Under new rules that will come into effect by the end of June 2017, QFIs will be able to own up to 49 per cent of a company’s capital, “unless company’s bylaws or any other regulation provides for foreign ownership to be limited to a lower percentage”.

Individual QFIs will be able to own up to 10 per cent of a company’s share capital, compared with the current level of 5 per cent.

“The CMA aims for these measures to provide greater stability to the overall capital market environment, through applying international best practices, incentivising investors in an environment that supports the national economy,” the regulator said in a statement.

The participation of foreign institutional investors in Saudi privatisations is a key element of the kingdom’s ambitious economic reform plan, unveiled last month, intended to reduce the kingdom’s dependence on oil revenues.

The country has announced plans for listing of a five per cent stake in Saudi Aramco, a move that could raise in excess of $100bn.

The opening of the Saudi stock exchange, the region’s largest, to QFIs in June of last year was hailed as a milestone at the time, but has so far failed to attract large scale foreign investment into Saudi equities.

Licensed QFIs, which include Blackrock, Ashmore Group, Citigroup and HSBC, owned just 0.09 per cent of stocks listed on the Tadawul at the end of last week, according to stock market data.

The CMA also announced on Monday that it had approved a request from the Tadawul to amend the transactions settlement cycle for listed shares to T+2 from T+0, with the change also coming into effect before the end of June next year.

The lengthening of the settlement cycle, which will give investors two days to settle equities transactions instead of having to settle on the same day, has been cited as an obstacle to the inclusion of Saudi stocks in MSCI’s widely tracked Emerging Markets Index.

The CMA also announced plans to introduce regulations for securities lending and covered short-selling on the Tadawul, which will also come into effect before the end of June.

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