Saudi plans stock market reforms to draw foreign money

Tue May 3, 2016 8:56am EDT
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By Andrew Torchia

DUBAI (Reuters) - Saudi Arabia announced a string of reforms to its stock market that could attract billions of dollars of fresh foreign money and smooth sales of state assets as the kingdom grapples with damage to its finances caused by low oil prices.

When Riyadh opened its bourse to direct foreign investment last June, it took a cautious approach, imposing tight ownership limits and minimum qualifications for overseas institutions to reduce the risk of them destabilizing the market.

Reforms announced on Tuesday suggested authorities are now courting foreign money more aggressively. Last week, Deputy Crown Prince Mohammed bin Salman outlined sweeping plans to cut the kingdom's dependence on oil exports.

Among his plans are a privatization program that will include offering a stake of under 5 percent in national oil giant Saudi Aramco. The Saudi stock market could have trouble absorbing the shares without an infusion of foreign money.

“This is a very good piece of news and supportive of the stock market in the medium- to long term," Sebastien Henin, head of asset management at Abu Dhabi's The National Investor, said of Tuesday's announcement.

"It may clear the road for the possible listing of Aramco shares...All in all, this will align the bourse with international markets and encourage foreign investors to allocate funds to Saudi shares."

Each foreign institutional investor will be allowed to own directly a stake of just under 10 percent of a single listed company, up from a previous ceiling of 5 percent, the Capital Market Authority (CMA) announced.

Other restrictions were scrapped, including a ceiling of 10 percent on combined ownership by foreign institutions of the market's entire capitalization. All foreign investors combined will still be limited to owning 49 percent of any single firm.   Continued...

An investor monitors a screen displaying stock information at the Saudi Stock Exchange (Tadawul) in Riyadh, Saudi Arabia January 18, 2016. REUTERS/Faisal Al Nasser