Saudi Arabia Foreign Shares Listing Rules May Boost Gulf Markets

Saudi Arabia’s decision to allow foreign companies to list securities in the Arab world’s biggest bourse may help the region’s equity markets lure investors and boost trading volumes.

Securities on another exchange with comparable listing rules to those in Saudi Arabia can apply for a dual listing in the kingdom, according to new regulations posted on the Saudi Arabian Capital Market Authority’s website yesterday. The country currently doesn’t permit foreigners to directly own shares in its listed companies. The government allowed citizens of neighboring Persian Gulf states to trade in shares in 2007.

“Some United Arab Emirates issuers could list in Saudi Arabia and attract decent liquidity and valuations,” said Dubai-based Ibrahim Masood, who helps manage about $400 million at Mashreqbank PSC. “We keep talking about a regional exchange, Saudi could be it.”

Persian Gulf stocks have been hurt by uprisings in the Middle East and North Africa and Europe’s debt crisis. Trading volume on Dubai’s benchmark stock index plummeted to a six-year low in 2011. Saudi Arabia’s stock market may gain frontier market status at MSCI Inc. “quite quickly” if it opens up to foreign investors, HSBC Holdings Plc said this month.

Dual Listings

An inclusion at the index provider may also pave the way for an upgrade to emerging market status, HSBC said. Qatar and the U.A.E., whose stock markets have the second and third-largest market values in the Gulf, are up for review from frontier market status in June.

The 150 companies on Saudi Arabia’s Tadawul All Share Index trade at 10.8 times estimated earnings, compared with 12.6 times for the S&P 500 Index. The measure fell 3.1 percent last year, compared with a 20 percent decline in the MSCI Emerging Markets Index and a 9.3 percent drop in the Bloomberg GCC 200 Index.

MSCI classifies six of the Gulf’s seven bourses as frontier markets, a designation that typically applies to economies and financial markets that are less developed. MSCI indexes are tracked by funds that oversee about $3 trillion in assets, so getting promoted to emerging market from frontier can increase investment.

The new Saudi rules will “allow regional companies with extensive Saudi business to tap the country’s capital markets through dual listings, which would prove an interesting dynamic for investors and provide companies with an additional source of funding,” said Ali Khan, London-based head of Middle East and North Africa equities sales at Royal Bank of Scotland Group Plc. “It appears the CMA will continue to introduce a series of measures to gradually open up the markets, which would reinforce the Tadawul’s importance in the region.”

No Time Frame

Saudi Arabia, the biggest Arab economy, hasn’t set a time-line for opening its market to foreigners, stock exchange Chief Executive Officer Abdullah Al-Suweilmy said last month. The regulator is in discussions with international banks to open the exchange to foreign investors in the first quarter, three bankers familiar with the matter said in October. The Tadawul has a market value of about 1.28 trillion riyals ($341 billion).

“It’s a good step, a step closer to further opening the market to foreign investors,” said Turki Fadaak, head of research at Riyadh-based Albilad Investment Co. “At this stage, current investors will trade stocks listed by foreign issuers, and in later stages, foreign investors too will be trading these shares.”

The kingdom permits non-resident foreigners to trade through share-swap transactions and exchange-traded funds, with the market regulator approving the first ETF in March 2010.

“Saudi Arabia seems to be opening itself up to the world here,” Mashreqbank’s Masood said. “This is really a step ahead of the traditional first steps markets take, which is to let foreigners in” and then allow them to raise money by cross-listing, he said.

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