Tadawul sees improved chance of MSCI index inclusion

04 May 2016

Biggest bourse in GCC says settlement system changes increases inclusion possibility

Saudi Stock Exchange (Tadawul) sees improved chances of getting included in global index provider MSCI’s Emerging Market Index, which is tracked by investors managing trillions of dollars in assets, after the market announced structural changes and loosened restrictions on foreign investors.

”MSCI inclusion is very important for qualified foreign investors and some of the local funds. It’s an objective for the exchange,’’ Tadawul Chief Executive Khalid Abdullah al-Hussan told Euromoney Saudi Arabia Conference. “With all these changes, we see that happening.’’

Tadawul on 3 May said that it has received approval from the regulator Capital Market Authority to extend the current T+0 (same day settlement system of transaction) to T+2.

The same day clearance of the transactions has been the biggest impediment in the flow of investments from foreign institutional investors, and one of the reasons why the exchange hasn’t seen a significant pick up in foreign investments since opening up the bourse to foreigners.

Tadawul aims to be part of Emerging Market Index by 2017, however, the index provider had expressed reservations about the bourse’s settlement system and its accessibility to foreign investors.

MSCI will now review the investors’ feedback and will make a decision, Al-Hussan told the conference.

The stock exchange had last year announced to sell its share in a public offering. Al-Hussan said, the bourse will name the financial advisors in a few days who will help the biggest bourse in the Middle East to launch its IPO by 2018.

The exchange, which will become only the second regional bourse to undertake a public float after Dubai Financial Market, has already conducted IPO readiness exercise. The appointment of investment banks, valuation exercise and structural changes are all part of Tadawul’s efforts to execute a successful IPO, he said.

Asked if he expects a flurry of IPOs from state-owned entities in the wake of proposed privatisation of some of the government assets under sweeping economic reforms, the chief executive said that the number of such companies is not known yet.

“No one can figure out the number of intended IPOs. We are ready for it,’’ he said of a potential rush of public floats.

Saudi Aramco, the world’s biggest oil producer is on top of the list. It will first be floated as the Aramco holding and shares in some of its subsidiaries will be sold to public at a later stage, he said.

Aramco IPO, he added will completely shift the positioning of Saudi Arabia’s capital market putting it at level with its global peers.

He didn’t clarify, if the Tadawul has the depth to absorb such a large IPO but said it will be a “moment of history for all of us”.

Riyadh expects Aramco to have valuation of about $2 trillion and it plans to sell less than 5 per cent of the oil giant to public. The roughly $100bn IPO, would be about a quarter of Tadawul’s current total market capitalisation of close to $400bn.



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