| Saudi Arabia’s Capital Market Authority (CMA) has unveiled a number of reforms over the past year to raise the country’s profile and transform Tadawul into one of the most dynamic emerging markets.
Among the reforms introduced was the instructions for the Foreign Strategic Investors Ownership in listed companies, which removed limitations contained in the Rules for Qualified Foreign Financial Institutions Investment in Listed Securities.
“The Instructions aim to regulate the provisions, requirements and conditions for the foreign strategic investors' ownership of a strategic shareholding in listed companies, in addition to determining the foreign strategic investors' obligations and the obligations of the Authorised Persons in this regard,” CMA noted.
The reforms have paid off, as foreign investors are emerging as an important segment of the market’s investor base.
CMA’s latest data from February shows that the total value of shares purchased by foreign investors during the month reached SAR 9.49 billion, representing 13.26% of all buying activity; they also sold SAR 7.02 billion shares in February, or 9.8% of the total.
“Total ownership of foreign investors stood at 2.13% of total market capitalisation as of 27 February 2020, representing a decrease of 0.08% from the previous month,” CMA said.
The net buying of foreign investors is more impressive as the wider market saw declines and the total value of shares traded during the month decreased by 15.14%.
ARAMCO IPO Last year, CMA also saw the landmark initial public offering of Saudi Aramco, the world’s largest listed company and the world’s biggest oil producer.
Tadawul’s market capitalisation at the end of the year 2019 reached SAR 9,025.44 billion (USD 2,406.78 billion), an increase of 385.51% compared to the end of the previous year, thanks to the Aramco listing, CMA said in its annual report.
Mohammed al-Rumaih, Tadawul’s chief of markets, said that the bourse underwent massive changes and upgrades to its system to handle the mega deal. Parallel to that, Tadawul introduced index capping for TASI with a 15% threshold to reduce dominance of larger companies on the index performance so that the weights of all index constituents remain under a set capping threshold. Any constituent whose index weight reaches or exceeds the threshold will be capped in accordance with the set limit, the firm said.
“The update to Tadawul’s indices methodology reflects our continuous efforts to further develop the Saudi capital market and ensure more balanced indices, which will accurately represent the movement of the market, enhance disclosures and transparency and minimise securities’ dominance within Tadawul Indices,” said Eng. Khalid Al Hussan, CEO of Tadawul.
The systemic strength came into play as the global markets declined in late February and early March as the majority of the markets across the world saw heavy trading activity.
Five other companies/funds offered parts of its shares to public (IPOs) in 2019. At the end of the year, the total number of listed companies on the Tadawul trading board reached 199.
Another landmark was Saudi Arabia’s successful inclusion into the MSCI Emerging Markets Index, with the kingdom making up 2.8% of the index’s total market capitalisation, featuring 31 listed companies.
In 2018, CMA also approved the Financial Technology Experimental Permit, which will increase innovation in the domestic economy in line with the Vision 2030 goals, specifically the Financial Sector Development Program.
The CMA’s approach follows a similar methodology to Saudi Arabian Monetary Agency’s sandbox strategy, which allows new products and technologies to be tested under the auspices of the regulator to limit risks.
FOREIGN COMPANIES Last year, Tadawul said it will allow foreign companies to list on Tadawul after the CMA's approval of amended listing rules including provisions related to foreign listing.
Foreign companies will be subjected to the same listing, disclosure and governance requirements as Saudi-listed companies, and foreign shares will be traded on the Saudi exchange in Saudi riyals, the company said in a statement.
"Foreign listings on the Saudi market reflects the importance of integration between capital markets in the region. This will facilitate issuers’ access to new funding resources and enable investors to reach a diversified pool of investment tools”, said Tadawul CEO Hussan.
Tadawul and CMA have also been collaborating on developing rules and provisions for foreign listings.
Meanwhile, the Securities Depository Center Company (Edaa), a subsidiary of Tadawul, signed deal with Abu Dhabi Securities Exchange and Bahrain Clear to allow foreign companies to list on Tadawul, and unify administrative and operational procedures between the countries. |
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