Foreigners to participate in Saudi IPOs ‘on case by case basis’

There have been six IPOs on the Saudi stock exchange during the past 12 months including the $6 billion public offering of National Commercial Bank in November, the kingdom’s largest to date. Faisal AShow more

Saudi Arabia’s market regulator has raised the prospect of direct participation by foreigners in initial public offerings of local companies, as the kingdom prepares to open up its stock market to qualified foreign investors.

Mohammed Al Jadaan, chairman of Capital Markets Authority (CMA), said yesterday that foreigners would be allowed to participate directly in IPOs of Saudi companies on a case-by-case basis. He gave no further details as to what criteria would be used.

“It is a coordination between the issuer and the CMA,” he said at the Euromoney Saudi Arabia conference, which opened yesterday in Riyadh.

“It is quite open for interpretation. There are no restrictions. It will be up to the market and what the CMA feels the market requires at the time.”

The participation of foreign investors in Saudi IPOs is a politically sensitive issue, with shares often offered at below market value as a means of oil wealth distribution for the kingdom’s citizens.

There have been six IPOs on the Saudi stock exchange during the past 12 months. These included the US$6 billion IPO of National Commercial Bank in November, the kingdom’s largest public offering to date.

Mr Al Jadaan’s comments came the day after the CMA published final rules for qualified foreign investors to invest directly in the country’s stock market for the first time.

CMA regulations stipulate that institutional investors must hold a minimum of 18.75bn riyals (Dh18.36bn) under management, and will be prohibited from owning more than 10 per cent of the total market.

The new rules will be enacted on June 1, with the market open to foreign investors from June 15.

Mr Al Jadaan speculated yesterday that rules on foreign investors could be further relaxed “as the market matures”, giving no further details.

While the opening of the market has been highly anticipated, the entry of foreign investors is likely to be a gradual one, according to Sameer Nawaz, managing director and co-head of investment banking at Saudi Fransi Capital in Riyadh.

“The CMA’s approach has been a very measured one, they’re not opening the floodgates and welcoming everyone at this stage,” he said.

“Investors will have to be of a particular size, and will have to go through an approval process, so they’ll probably come in quite a staggered way.”

The impact of the publication of the new rules had little discernible impact on stock prices yesterday. The Tadawul closed down 0.37 per cent at 9,751.03.

* with Reuters

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