The Capital Market Authority (CMA), Saudi Arabia’s regulator, announced a raft of measures and new regulations last week designed to make it easier and more attractive for non-Saudi companies to list on the Tadawul, Saudi’s stock exchange.
Mohammed Elkuwaiz, chairman of the CMA, was quoted as saying the move would ‘create greater opportunities for diversification of investment for investors’ on the Tadawul. The new rules are designed to make it easier for foreign companies to list on the main market and to promote trading and listing on the secondary market, known as NOMU, the CMA said.
The move makes strategic sense: the Tadawul is by some way the largest and most liquid market in the Arabian Gulf, recent regulatory changes have made it easier for international investors to participate in the market, and it is soon to host the world’s largest IPO, with the long-awaited listing of Saudi Aramco, the world’s most valuable and most profitable company.
For international companies, there are clear attractions to a Saudi listing: businesses operating in the countries of the Gulf Cooperation Council (GCC), and local subsidiaries of large multinationals would be making a loud and clear statement of commitment to Saudi Arabia, always good for business in this part of the world. They would access a new pool of liquidity for their shares, along with the currency stability provided by issuing in the Saudi riyal, with its peg to the US dollar, removing the currency risk of listing in South Africa, Egypt or Pakistan, for example.
For Saudi Arabia, there are distinct advantages too: international listings will provide more opportunities for Saudi investors, attract foreign investment and be a step toward the Saudi Vision 2030 aim of diversifying the economy away from oil.
There is some downside to a Tadawul secondary listing, however: multiple listings can split market liquidity and will duplicate listing costs. Furthermore, regulations in Saudi Arabia are generally of a higher standard than other GCC markets, with a regulator willing to impose sanctions for non-compliance, which may be an additional source of cost for some companies.
Nevertheless, the move has been broadly welcomed by market participants, and is seen as another building block in the road to Saudi Vision 2030. But the biggest draw for cross-border listings has yet to arrive.
The Saudi Aramco element in the future success of the Tadawul in attracting foreign listings cannot be overstated. For any exchange to succeed, just like a retail store, it must have the ‘product’ investors want to buy. Many will remember that the NYSE and Nasdaq had the right product – blue chips and tech stocks, respectively – whereas the American Stock Exchange did not. Without product, investors choose other destinations for their cash. And Saudi Aramco is going to be a hugely popular product on the Tadawul’s shelves.
A company’s presence on the Tadawul will benefit by association with the presence of the world’s biggest dividend payer and profit generator. Investors will look beyond Aramco for other Tadawul gems, such as the well-run Saudi banks and other companies. And market liquidity is going to increase incrementally by virtue of the presence of Saudi Aramco.
Even without the presence of Aramco, the benefits of a Saudi listing remain constant, and the local market is deep enough to satisfy most liquidity requirements. But with Aramco’s listing, the Tadawul will become a truly attractive destination for cross-border issuers. Following the successful inclusion in the global emerging markets universe earlier this year, the Tadawul is poised to enter another era of growth.
