New strategic ownership rules open fresh investment channels: CMA

Saudi Arabia’s decision to scrap the ownership limit for foreign strategic investors in listed companies will open a new investment channel, reflecting positively on foreign market participants and local firms, Abdullah Bin Ghannam, Capital Market Authority (CMA) Deputy for Listed Companies & Investment Products, said.

“Foreign investors were first permitted in 2007 to trade through share swap transactions, under which they own indirect stakes in listed firms through authorized brokerages,” Ghannam told Argaam in an interview on Monday.

Qualified foreign institutions (QFIs) were allowed to invest directly in Saudi stocks in 2015. But the Saudi market regulator recently green lighted strategic investors to own stakes in listed companies, in a move that aims to enhance corporate financial and operating performance.

Read: More foreign investors eyeing Saudi market as holding limit eases: CMA chairman

“We opted to define foreign strategic investors in light of the ownership period. Strategic investor buying a stake in a listed company will need to maintain their holdings for two years,” Ghannam said.

“The two-year lockup period is very reasonable, as strategic investments are usually made over medium to long term. Meanwhile, short-term investments are off-limits for qualified foreign institutions,” he added.

Foreign strategic investors include industrial, commercial or medical firms that seek to hold strategic stakes in the Saudi market.

Meanwhile Jehad Almuflih, head of mergers and acquisitions (M&A) unit at CMA, noted that under the new rules market, participants eye promising investment opportunities, rather than stock speculations.

“The inactive flows will allow investors to play a comprehensive role in corporate management and decision making. They will also enhance the financial and operating performance of those firms going forward,” Almuflih said.

On the other hand, Mohammed Al-Madi, head of the M&A offering department at CMA, said that the entry of foreign strategic investors in the Saudi market does not require a prior approval from the market regulator, as authorized brokerage firms can directly open accounts for potential investors.

“The CMA is still monitoring all sectors and authorized brokerages – particularly in terms of combating money laundering and application of account opening rules – and will update the existing regulations, if necessary,” Al-Madi added.

Sharing the same viewpoint, Mohammed Al-Fadel, head of the CMA’s foreign investment unit, noted that mandating the authorized brokerage firms to directly open accounts for QFIs had earlier eased many transactions and reflected positively on the market.