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Investment
in Arriyadh
foreign partners, which may themselves be SMEs with complementary skills sets and expertise,
have very real opportunities in the country. This is particularly true of the growing number
of Saudi high technology start-ups whose funders may be great software coders and designers,
but perhaps need overseas partners with marketing experience and international promotional
reach.
Capital Formation and Role of Tadawul
The Council of Ministers this July endorsed an approach by the Capital Market Authority
(CMA) that will at last enable foreign investors to make direct investments in Saudi stocks and
bonds via the Saudi Stock Exchange (Tadawul). This change will bring further liquidity and
dynamism to a 156-company market now worth some $530 billion, which following a salutary
boom and bust not long after it started in 2007, has gone on to acquire depth and maturity.
Until now overseas investors have only been able to participate indirectly through ‘Total
Return Swaps’ - instruments intermediated by local banks and other financial institutions. The
official concern has long been that the rapid appearance and no less rapid disappearance of
speculative investors would have a distorting and destabilising effect on the Tadawul All-Share
Index (TASI). While it seems certain that there will be greater volatility, the experience of
other emerging stock markets that have opened up to foreign investors has demonstrated that
sudden outflows of capital are no longer necessarily critical to a market’s underlying health.
It seems likely that overseas investment via the Tadawul will be open only to funds with
at least $5 billion under management. This is designed to exclude smaller, more speculative
investors and encourage long-term hold strategies designed to draw income from dividends
and capital appreciation. One of the unusual aspects of the Tadawul is that some 90 percent of
its investor base has always been retail.
The Government’s commitment to further privatisation means that there are going to be
highly attractive opportunities for investors in a market where credit quality is ranked with the
best development bourses.
Among the leading Tadawul shares are the Saudi Telecom Company which was privatised
in 2002 and Saudi Arabian Basic Industries Corporation (SABIC), one of the world’s largest
petrochemicals producers with a market capitalisation of $68.8 billion. There is also Al Rajhi
Bank, the world’s largest Islamic bank, worth $31 billion; Almarai and Savola Group in the
food products sector and Tawuniya in the relatively new insurance sector.
The opportunity for new businesses to raise capital on the Tadawul is clear. Greater
transparency and recent swift and firm action taken in two problematic cases, has provided
investors with a high degree of comfort. Bank money is available for start-ups but this tends
to be for working capital. There is a limited market for short term commercial paper. Since
2009 the Tadawul has run a Sukuk market (Islamic bond) along with standard corporate bond
placement. The lack of debt issuance from the Government and quasi-government institutions
has meant that bond trading has tended to be illiquid with many positions held until term.
With the completion of the King Abdullah Financial District, the Tadawul will be moving
into its very own prestigious tower which will house the exchange floor, the advanced trading
systems and the offices of brokers and officials
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