Saudi Arabia is working on a plan to allow non-resident foreign investors to own strategic stakes in listed companies as the kingdom overhauls its economy.
The Capital Market Authority (CMA) and the Saudi Arabian General Investment Authority (SAGIA) signed a memorandum to set up a framework to allow foreigners to own 10 percent or more of publicly traded companies and to give the investors voting rights, according to a statement on October 22. The rules won’t be valid for sectors that prohibit such ownership by law.
Saudi Arabia is opening up its markets and selling stakes in key companies, including Saudi Arabian Oil Co. to its stock exchange, as part of nationwide reforms to ween the crude exporter off of oil income.
In June, index provider MSCI Inc. put the kingdom on its watch list for potential inclusion in emerging markets. The country’s stock exchange, known as Tadawul, has a market capitalization of about $440 billion, the largest in the Arab world.
"For some time, SAGIA has been active in establishing easier rules for FDI in, for example, economic city free zones,” said Hasnain Malik, the head of equities research at Exotix Partners LLP in Dubai.
“To see this coordination with the CMA in listed equities now bodes well for foreign portfolio inflows too."
The government issued 87 licenses for investment projects in the kingdom in the third quarter, up more than 60 percent from the same period last year. It issued 85 licenses in the three months ended June 30.
Saudi Arabia in 2015 allowed qualified foreign investors with a minimum of five years’ experience and $5 billion of assets under management to apply for licenses to trade equities directly. The regulator set a 5 percent limit for a single QFI in a company, and a 20 percent ceiling for QFI holdings in a single stock.
The authorities have since reduced the asset-under-management requirement to $1 billion, and raised the single-stock limit to 10 percent, but they still own less than 5 percent of total shares. The plan for non-resident strategic foreign investors will be different from its QFI rules in terms of scope and application.
“Policy decisions are being taken quickly and, as importantly, they are responding to market feedback,” Malik said. “This is very clearly not the Saudi we grew up with.”
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