CMA sets foreign access rules for stock market

(MENAFN- Arab News) The Capital Market Authority (CMA) laid down final rules on Monday for the long-awaited opening of its SR2.16 trillion stock market to foreigners.
The reforms have generated huge foreign interest with Saudi stock market's Tadawul All-Share Index (TASI) rising 17.44 percent so far this year the best performer among seven major gauges in the GCC.
Among stocks listed on the Tadawul are Saudi Basic Industries Corp. the world's biggest petrochemicals producer by sales and Al-Rajhi Bank the largest Islamic lender globally.
'Investors should receive well the announcement as it signifies the country's commitment to opening up the market' commented John Sfakianakis Middle East director at Ashmore Group.
'The details of the announcement are within what was expected and discussed over the last few months' he told Arab News.
The rules which take effect on June 1 ahead of the market's planned opening on June 15 permit only qualified foreign investors (QFIs) such as banks brokerages fund managers and insurance companies with at least $5 billion in assets under management to invest in the Saudi stock exchange.
Foreigners will be able to own up to 49 percent of a single stock and institutional foreign investors with a minimum of SR18.75 billion ($5 billion) under management will be allowed to invest directly in the stock market the CMA said in regulations published on its website on Monday.
The CMA reserves the right to lower that limit to SR11.25 billion.
The CMA has coordinated with the Saudi Arabian Monetary Agency (SAMA) and the Saudi Stock Exchange to allow foreign investors to open bank accounts and create a joint database to ensure account requirements are met spokesman Abdullah Al-Kahtani said in an e-mailed statement on Monday.
Before issuing the final rules the regulator received more than 500 comments on the draft copy from 33 local and foreign lawyers and investors he said.
TASI added 0.2 percent on Monday ahead of the CMA announcement. SABIC was the main support rising 1.3 percent.
'The impact is profound with many positive facets.' said Fawaz H. Alfawaz a Riyadh-based economic consultant and a columnist.
'It should give rise to better governance in the Saudi listed companies and beyond as the international focus is likely to push for more transparency and disclosure and sounder management practices' he told Arab News.
'It is also back channel to a far wider economic reforms where improvements in corporates performance will reflect positively on economic growth and productivity' said Alfawaz.
'The next frontier so to speak is once the Saudi market is included in the Morgan Stanley index where funds are obligated to commit funds to the Saudi market' he added.
Mushtaq Ahmed a senior financial analyst at Zughaibi & Kabbani Financial Consultants commented: 'It is a first step toward emerging market status but more family-owned business and state-owned companies to go public. It will increase the room for FDI.'
QFIs can own no more than 10 percent of Saudi Arabia's stock market by value according to the CMA.
A single foreign investor will be able to own no more than 5 percent of any listed firm while all foreign institutions combined can own no more than 20 percent.
According to Reuters fund managers estimate the market could draw $50 billion or more of new foreign money in coming years if it is included in global equity indexes.
The CMA said that it did not want a sudden destabilizing rush of money into the market placing a range of restrictions on the operations of foreign investors.
Foreign institutions including central banks will be required to apply for permission to invest.
Saudi income tax laws will apply to foreign investors and a 5 percent tax will be levied on the dividends paid to them by listed companies.
Direct purchases of Saudi stocks by foreigners can start on June 15 the CMA has said.
At present they are limited to indirect investment through swaps and exchange-traded funds which can be inconvenient and more expensive. They are estimated to own no more than about 3 percent of the market.
Basil Al-Ghalayini CEO of BMG Financial Group commented: 'Frankly speaking I don't expect those global emerging funds managers to rushallocating billion of dollars into the Saudi stock market. I believe they will take their time to further explore leadingcompanies especially with the impact of thegeopolitical risk and oil prices fluctuations.'

He added: 'Our BMG's summer retreat in association with the Institutional Investor this month in the UK has been designed from a timing and meeting place to be the match making venue between buyside global financial institutions and leading listed companies. It is a good opportunity for those emerging marketsmanagers to meet with CEO and CFO of leading Saudi companies to make the right long-term investment decisions.'
The CMA spokesman explained that opening the Saudi stock market for foreign investment aims for several objectives.
The most important of those objectives are:
Promote institutional investment through the entrance of specialized foreign investors in the Saudi Capital Market which would contribute in market stability and reduce volatility.
Raise the level of research studies and evaluation on listed companies and macro-economic issues. The CMA noticed an increase in research and reports.
Enhance the market efficiency and motivate listed companies and the specialized investment companies improve the level of transparency financial information disclosure and governance practices.
Transfer the knowledge and expertise to the local investors and financial institutions as well as raising the level of professionalism of the market participants by attracting highly professional experts.
Strengthening the Saudi capital market's position to become a leading market. In addition to increasing the opportunities of raising its rating to be classified as an emerging market under the global indices.