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Saudi Market Regulator to Accelerate Plans Easing Foreign Investment Restrictions

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RIYADH—Saudi Arabia’s market regulator is accelerating efforts to further ease restrictions on foreign investors by the end of 2016, as it prepares to list what is likely to be its star attraction: oil giant Aramco.

The Saudi Capital Market Authority in May unveiled plans to allow foreign investors to own larger stakes in listed companies as part of new regulations it expected to implement by mid-2017.

“Possibly we will implement it well ahead of what we said, in June 2017. It might be in this year,” Mohammed al-Jadaan, the chairman of the Capital Market Authority, said in an interview with The Wall Street Journal this week. “To make sure that when it comes to that day we will be prepared, some of the changes will be phased in.”

The public consultation on the proposed changes concluded last week, and the new rules could be published by the end of September, Mr. al-Jadaan said.

Those amended rules include lowering the minimum value of assets foreign institutions are required to manage to qualify to invest in the Saudi stock market. The stock market also intends to move away from a same-day trading settlement system to instead clear trades within two working days, which foreign investors prefer.

In June 2015, the kingdom allowed international institutional investors to buy local equity, a move that would potentially help the kingdom attract more foreign capital and reduce its dependence on oil revenues.

But international interest in the kingdom’s listed companies has so far been lukewarm. Currently, foreign investors own under 1% of the market by value.

National oil company Saudi Aramco’s listing could change that.

Saudi Arabia plans to list up to 5% of its state-owned company on global stock exchanges, including, its main bourse at home. It estimates that Aramco—formally known as Saudi Arabian Oil Co.—is worth between $2 trillion and $3 trillion, which means the initial public offering could potentially raise $100 billion to $150 billion.

For the $401-billion Saudi Stock Exchange, known as Tadawul, that would be a windfall listing—ensuring international investors won’t be able to ignore the Middle East’s biggest equity market.

“It [Aramco] will call attention. If they are focusing on the Saudi market, they will then look at other assets,” Mr. al-Jadaan said.

The regulatory body and the stock market are holding regular talks with Aramco and have even set up a task force to address investor concerns.

“We want to make sure the whole ecosystem is prepared for it,” Mr. al-Jadaan said. “We will be thrilled to have Aramco come to the market. It’s something we would proud of, but we also want to make sure that we are ready.”

Saudi Arabia announced a wide range of economic changes in April aimed at reducing the kingdom’s dependence on oil. The strategy, known as Vision 2030, includes bolstering non-oil industries and attracting more foreign investors. The listing of the national oil giant is a cornerstone of the government’s ambitious vision.

The government hasn’t yet decided exactly how much of Aramco will be sold publicly, and where its shares will be floated in the event of multiple listings.

“That is for sure: they will list in Tadawul. Whether they will list somewhere else, that is a decision they will have to make,” said Mr. al-Jadaan.

But he is aware that the kingdom’s bourse is unlikely to be able to garner the liquidity needed to absorb what is likely be one of the world’s biggest public offerings.

“It’s [Aramco IPO] going to be a huge amount and it’s unlikely that local demand will cover it, so you’ll be looking for international cover. And you want to make sure that the international demand process is prepared,” he said.

Stock exchanges in New York, London and Hong Kong are among those being considered, according to officials.

The CMA chief also expects the market to be included within the next 12 months in some of the main global equity benchmarks that international investors follow.

Index provider MSCI Inc. last month said the implementation of reforms that give foreign investors easier access to the Saudi stock market would boost its chances of winning the emerging-market tag. Such classifications help attract millions in additional inflows from funds that use these benchmarks. The MSCI Emerging Markets Index is tracked by money managers with some $1.5 trillion of assets.

“I think it’s a no-brainer. We are actually preparing ourselves for foreign investment just to make sure we are ready for assets like Aramco and smaller but large assets,” Mr. al-Jadaan said.

TAGS: Oil, Aramco

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