Saudi bourse courts foreigners as it readies for oil giant's IPO

By Dinesh Nair on 3/6/2018

LONDON (Bloomberg) -- Saudi Arabia’s stock market is on a charm offensive as it prepares for what could be the world’s largest initial public offering.

The exchange, known as Tadawul, aims to boost foreign ownership of equities to as much as 25% in at least the next two years from about 4%, CEO Khalid Al Hussan said in an interview in London, where he attended a Saudi Arabia investment conference organized by Goldman Sachs Group Inc.

The bourse currently has about 120 registered Qualified Foreign Investors -- who are allowed to trade Saudi stocks directly -- and is reviewing applications of 180 more, he said. Foreigners have been net buyers of more than a 1 million riyals ($266,600) worth of shares for just one week since October 2015, when Bloomberg began tracking the data.

“It will be great if one day our 49% foreign-investor limit is challenged but ideally, we will be satisfied if in the next two years or more, we have about 20 to 25% foreign ownership in our markets,” Al Hussan said. “We are telling global investors that our markets are open and are consistently encouraging them to invest with us.”

The world’s biggest oil exporter has embarked on a range of reforms to diversify its economy after a plunge in crude prices crippled the nation’s finances. The reforms include a potential listing of Saudi Arabian Oil Co., the kingdom’s crown jewel, in the hope it will attract more international investors to its bourse and boost capital market activity.

As part of its plan to revamp the economy and reduce dependence on oil revenue, Saudi Arabia is seeking inclusion in MSCI Inc.’s emerging-market gauge. A decision from MSCI on whether the kingdom is on the index provider’s review list is due in June. The bourse is also seeking a similar status from index provider FTSE Russell.

“Index inclusion for us isn’t a question of if but of when,” Al Hussan said. “We are confident that we have taken all the necessary remedial measures which has been pointed out to us by the providers.”

Saudi Arabia will have a potential weighting of 2.3% on MSCI’s emerging-market index, the third largest in the Europe, the Middle East and Africa, the index provider said last month. Based on that, an inclusion could result in inflows of about $30 billion to $40 billion, Al Hussan said.

Aramco IPO

The exchange is also prepared to host the initial public offering of Aramco and doesn’t see any significant liquidity concerns arising from it, Al Hussan said. He referred to the $6 billion share sale of National Commercial Bank in 2014, which had demand of about $80 billion to $85 billion from Saudi Arabian investors alone.

“The Saudi stock exchange has a long track record of attracting successful IPOs,” he said. “The question of timing and other matters with the Aramco listing lies with the issuer but from our side, we are prepared for it.”

An anti-corruption crackdown by the country, which resulted in the arrests of Prince Alwaleed Bin Talal and other billionaires, has only boosted investor confidence in the economy, Al Hussan said, adding that QFI applications increased significantly in the two weeks after the crackdown.

“The anti-corruption drive isn’t unique to Saudi Arabia,” he said. “Several countries have taken measures in the past to address corruption. If anything its been reassuring for investors that Saudi Arabia is serious about bringing governance and transparency in the economy.”

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