Saudi stock regulator tightens trading rules on loss-making companies

The Saudi Arabian Capital Market Authority (CMA) has tightened rules on how long shares in listed firms can trade if the companies have large accumulated losses, it said on Monday, in a move that analysts said could soon affect several firms.

The new rules will compel companies with losses totalling 50 per cent of their capital to announce plans to remedy their financial standing, and will impose penalties including suspension of trading on companies with bigger losses.

They will come into effect in July next year.

Saudi Arabia, home to the Gulf Arab region’s largest stock exchange, is considering opening its bourse to direct investment by foreigners. Market participants hope a series of slow changes to the regulatory framework, bringing it closer to international standards, will facilitate that move.

CMA chief Mohammed bin Abdulmalik Al Al Sheikh, who was appointed in February, proposed the new rules in May along with suggested changes on how to calculate a stock’s closing price, in order to limit excessive speculation in shares.

Seven companies listed on the all-share index , including some insurance companies, now have accumulated losses of between 50 and 75 per cent, said Turki Fadaak, head of research at Al Bilad Investment.

“Competition in the insurance sector forced small companies to incur losses over the past few years - such companies compete with large giants whose capital is 1 billion Saudi riyals,” Mr Fadaak said.

Under existing regulations, sanctions only start when a company’s accumulated losses pass the 75 per cent mark.

Companies with losses above 50 per cent will under the new rules have to make monthly bourse disclosures on the progress of their plans to cut losses.

Trading in companies with losses of more than 75 per cent will be suspended for one day. Trading of shares in companies that have losses of more than 100 per cent of their capital will be suspended on the following day and resume only when their losses fall below 75 per cent.

In May, authorities ordered the delisting and liquidation of Saudi Integrated Telecom , a relatively small and new firm which had struggled for months under the weight of its losses.