By Ahmed Al Omran in Riyadh and Nikhil Lohade in Dubai
Saudi Arabia will open its $530 billion stock market to foreign
investments on June 15, a keenly awaited move that will give
international investors direct access to the Middle East's biggest
economy.
Officials revealed plans last year to allow direct foreign
investment in Saudi-listed entities in the first half of 2015,
publishing draft rules in August for public consultation, which
would allow the kingdom to attract hundreds of millions of dollars
in foreign cash as it pushes to diversify its petrodollar-dependent
economy by boosting the private sector.
On Thursday, the Saudi Capital Market Authority said the final
rules regulating direct foreign investment will be published on May
4 and come into effect on June 1, after which the market will open
to foreign investors
"The CMA has reviewed comments and observations received in this
regard, coordinated with concerned governmental parties, and
received the Saudi Stock Exchange (Tadawul)'s confirmation of its
readiness," the regulator said.
The Saudi Tadawul, one of the last big markets globally to limit
international access, lists some of the largest
companies--representing various sectors--in the region, including
petrochemical giant Saudi Basic Industries Corp., or Sabic.
Saudi Arabia is also among the most active initial public
offering markets in the region. Last year, its biggest local
lender, National Commercial Bank, raised $6 billion in the largest
share sale ever in the Arab world.
To that extent, foreign investors seeking access to the region
will be able to invest in a stock market that is more
representative of the real economy than many of its regional peers.
It is, however, still not clear what exact limits the regulator
will have in place for foreign investments.
Saudi Arabia in 2008 began allowing foreign investors indirect
access to the market through swaps, but it has hesitated to open
the market fully. A sharp fall in oil prices since the middle of
last year raised investor hopes of such a move, as analysts
reckoned the kingdom would need the cash as it spends hundreds of
billions of dollars locally to build infrastructure and create
jobs.
"The guidance provided by the Saudi Capital Market Authority,
effectively confirming the timeline of steps necessary for the
opening of the market to foreign direct investment is very much
consistent with previous communication," Bassel Khatoun, head of
Middle East-North Africa equities at Franklin Templeton, said.
The move to open the Saudi market comes after two of its smaller
regional peers, Qatar and the United Arab Emirates, were promoted
by index compiler MSCI Inc. last May to emerging status--a step
that usually draws in funds from investors who track the index.
Saudi Arabia's stock market is also likely to be promoted to
emerging status eventually, analysts say. MSCI last year said the
earliest Saudi Arabia could enter either the frontier or emerging
market grouping would be mid-2017.
Once included in the MSCI emerging-market index, Saudi Arabia is
likely to have a weight of around 4%, analysts at Global Investment
House have previously estimated. This would mean investments of
tens of billions of dollars could be assigned to the kingdom, and
boost the Middle East-North Africa's total weight in the
emerging-market basket.
The kingdom changed leadership in January as King Salman
ascended the throne after the death of his half-brother King
Abdullah. That change and a government reshuffle in February that
saw the head of the CMA replaced, caused some concerns among
investors that the country may not move forward with plans to open
the market by mid-2015.
A weak outlook for oil prices and geopolitical tensions in the
region further added to such worries. However, Thursday's
announcement shows that the kingdom appears to be on track to allow
foreigners to directly invest in its stock market.
"Rather than having to invest in so-called 'frontier,'
pre-'emerging' markets only indirectly, global investors will now
be able to participate directly in some of the world's largest
exchanges such as Saudi," said Robert Hockett, a professor at
Cornell Law School.
"This will carry with it both risks and opportunities.
Risk-wise, it is still unclear just how well regulated and free of
erratic government policies these exchanges will be.
Opportunity-wise, risk-tolerant investors will have easier access
to investment possibilities in some of the world's fastest-growing
companies," Mr. Hockett added.
Write to Ahmed Al Omran at ahmed.alomran@wsj.com and Nikhil
Lohade at nikhil.lohade@wsj.com
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