Saudi bourse opens up to foreign investors

The bounce back comes amid indications that the kingdom's stock market, which is the largest by capitalisation in the Middle East, is heading for a big expansion as local companies increasingly seek to use initial public offerings (IPOs) as a vehicle for raising capital.

Easing restrictions

The move to lift restrictions on GCC nationals investing in the kingdom's stocks is also playing a part. This and the market's expected opening up to non-Gulf investors is expected to result in a steadily increasing flow of overseas capital into the Saudi market.

The Tasi reached an all time high of 20,900 points in February 2006, driven by speculative buying largely by smaller investors, before its collapse to under 6,000 points. Observers see the Tasi as now reflecting a more cautious investor who pays greater attention to the financial fundamentals of companies and the evaluations by analysts of the latter.

Saudi Arabia's Capital Market Authority (CMA) has introduced more stringent company reporting requirements and taken action against insider dealing. In October, the authority also introduced a new trading system based on the Nordic OMX exchange, doubling its transaction handling capacity.

Companies traded on the exchange could double in number over the next two years, up from the current 106 listed, Brad Bourland, Chief Economist of the Riyadh based Jadwa Investment, predicts. This will make for a much more robust market.

Upping the IPOs

Between 30 and 40 companies may launch IPOs on the Saudi stock exchange in 2008, with the aim of raising up to $8bn, according to NCB Capital, the investment banking arm of the National Commercial Bank.

If this amount is confirmed, it would be double that raised by the 25 IPOs in Saudi Arabia over the last year. One of the largest of the new offerings will be the expected 25 per cent sale of shares in the Rabigh refinery venture under development by Saudi Aramco and Japan's Sumitomo Chemicals.

In December, the Chairman of the CMA, Abdul Rahman Al Tuwaijri, confirmed that foreigners will soon be allowed to make investments in stocks and participate in Saudi IPOs channelled through domestic funds established by licensed firms.

The Saudi British Bank's Chief Economist, John Sfakianakis, commented that the move is 'an excellent step in line with the kingdom's commitments to liberalising its economy. The opening up of the Saudi market will generate positive momentum for the rest of the region. Everyone will benefit from the partial opening up of the Saudi market.'

The HSBC bank says it intends launching two index products to give international investors access to Saudi Arabian equities. A Saudi equity index will include a range of 36 stocks while a Saudi petrochemical index will include 11 companies including the Saudi Basic Industries Corporation.

Henry Azzam, the CEO of Deutsche Bank in the Middle East and North Africa, said the opening up of the Saudi stock market to investors from outside the GCC will attract global institutional investors.

See also:
Saudi reforms boost foreign investment