Riyadh to lower foreign investment restrictions

11 August 2016

Early implementation of new regulations intended to drive increased foreign investment flows

Saudi Arabia will reduce restrictions on foreign investment in listed companies from next month, paving the way for increased flows into the region’s largest bourse.

Riyadh’s market regulator, the Capital Market Authority (CMA) is moving to implement the amended limits on foreign ownership sooner than was previously announced. In May, the authority said the new rules and their effective date would be published by the end of the first half of 2017. However, a statement on the Saudi Stock Exchange (Tadawul) says the updated regulations will now go into effect from 4 September.

The structural reforms being introduced by the CMA include doubling the limit for qualified foreign investors (QFIs) to own up to 10 per cent in a listed company. QFIs – institutional investors who can directly buy and sell Saudi stocks – together with their affiliates were previously restricted to a 5 per cent holding in a single company. Foreign investors, resident or non-resident, will also now be allowed to own up to 49 per cent of a single company.

The minimum value of assets under management for investors to be licensed as QFIs by the CMA has also been lowered to $1bn from $5bn previously.

The kingdom, which relies heavily on the sale of hydrocarbons for revenues, is facing an $87bn budget deficit. Development of the non-oil sector and foreign investment are central to the government’s recently announced economic transformation plan.

The CMA has been keen to lower the restrictions as the Tadawul has attracted little attention from foreign investors since it opened to direct foreign investment last year.

At the end of 2015, only nine foreign institutions had obtained licences to invest directly in the Saudi market.

In May, the CMA also approved the extension of T+0 (same-day settlement of transactions on the bourse between buyers and sellers) to T+2, which should lure more foreign investment in the market.

The introduction of securities lending and covered short-selling was another step approved by the authority, with regulations for those to be issued before the end of the first half of 2017.

The CMA’s chairman Mohammed al-Jadaan said at that time that the regulator was working with the exchange to finalise the new rules before the mid-2017 deadline.

The latest announcement by the authority did not say when the rest of the structural reforms will be implemented and whether it is following the same deadline to finalise the rules.

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