Oil eases investors past Saudi’s regulatory risks

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The Kingdom’s muddy investment rules are failing to deter foreign inflows, as Saudi’s oil-cushioned economy and state spending offers traders a safe haven from the global turmoil.

Foreign investors are set to stay bullish on Saudi Arabia despite the opaque nature of the Kingdom’s markets, as opportunities from a buoyant crude price and infrastructure spending outweigh regulatory risk.

But analysts say the case of unlisted Saad Group, which credit agencies stopped covering due to a lack of information, underline the need for stricter regulation and transparency from the world’s largest oil exporter.

Saad has said it needs a debt restructuring after bankers froze the accounts of its chairman and several relatives.

Saudi Arabia, which controls more than a fifth of global crude reserves, has pledged to spend $400bn to improve its infrastructure and diversify its economy, hit by global chaos to a much lesser extent than other Gulf states.

Investors see plenty of opportunities, and are willing to overlook some of the problems associated with doing business in the country.

“Problems in the Saad Group won’t have a negative impact on the overall picture,” said Birgit Ebner, who manages a Middle Eastern equity fund at Germany’s Frankfurt Trust. Some 30 percent of the fund is invested in the Kingdom.

“Saudi Arabia offers investors very interesting growth opportunities,” she said.

Equities investors are unlikely to be worrying much about the Saad case specifically, another asset manager pointed out.

“What happened with the Saad Group is regrettable, but it impacts bond investors far more than equity investors,” said Daniel Broby, chief investment officer at Britain’s Silk Invest, which is also invested in Saudi stocks.

“The latter prefer to focus on the opening up of the market and obvious opportunities afforded by the Kingdom’s infrastructure roll out,” he said.

But all this doesn’t alter the fact that investors are often in the dark about problems at Saudi firms, and this could store trouble for the future.

The central bank (SAMA) has not confirmed that accounts of Saad’s chairman, billionaire Mana Al Sanea, have been frozen, as bankers say. Despite cuts by rating agencies, Saad has declined to specify the size of its debt problem.

“SAMA should have come up with the truth,” influential commentator Abdullah Al Fowzan wrote in the Saudi daily Al Watan last week.

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