Saudi Arabia’s stock exchange (Tadawul) has introduced new rules that will allow overseas investors to take controlling stakes in listed companies and for non-financial companies to invest in Saudi stocks.
The broadening of stock ownership is part of the kingdom’s ongoing efforts to open up its capital markets to international investors and to help lessen its dependence on oil-based revenues.
“Companies were looking to acquire strategic stakes but they didn’t have a legal framework – so we created one,” said Mohammed Elkuwaiz, chairman of the Capital Market Authority (CMA). “We expect the volume to increase because the Saudi capital market has been appearing more and more on the radar screens of investors since the opening up.”
Under the new rules, foreign ownership of stocks will no longer be limited to qualified foreign investors (QFIs) – financial firms with at least $500 million in assets under management.
Whereas QFIs are restricted to owning no more than 49% in a single company, there will be no similar limit for new foreign strategic investors other than in certain markets such as real estate in the holy cities of Mecca and Medina or the telecoms, banking and insurance sectors where ownership is limited to 70%.
In addition, these same investors would have to retain their shares for at least two years and must be based in a regulated environment with rules equivalent to Saudi Arabia’s financial market.
At least two firms have already received pre-approval according to the CMA. Meanwhile index provider MSCI is set to announce the next group of Saudi stocks to be incorporated into its emerging market index on August 8.
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