RIYADH: Saudi Arabia’s Capital Market Authority (CMA) on 18 August issued new rules allowing foreign investors to buy shares directly in initial public offerings (IPOs).
The change is part of a broader aim to lower Saudi Arabia’s overreliance on oil export revenue and help the government earn billions of dollars by selling some of their state-owned assets. One of these assets is the Saudi Arabian Oil Co., or Aramco, which has an estimated value of around US$2 trillion. The government expects to earn as much as US$100 billion by selling 5 percent of Aramco in an IPO expected to take place in 2017.
According to Reuters, the new regulations announced Thursday will take effect on 1 January 2017, and will allow foreign investors to bid in the book-building process that underwriters use to price and allocate shares in IPOs. Before this new rule, non-Saudi institutions could purchase IPOs only on a case-by-case basis, although they could make indirect purchases such as using local IPO funds.
The changes to the IPO rules are “in line with previous moves to liberalize the stock market and allow for greater foreign investor participation,” said Fahd Iqbal, an analyst at Credit Suisse Group AG, in remarks to Bloomberg. “It would be difficult, in our view, for the domestic investor base to absorb all the part-privatizations that the government has planned, most notably Aramco, ” Iqbal added.
Saudi officials announced other reforms earlier that are expected to go into effect on 4 September that reduce the amount of assets that foreigners must have under management in order to invest directly in the nation’s stocks to approximately US$1 billion, with individual foreign investors being allowed to own as much as 10 percent of shares outstanding in a single company— a figure that is double what it once was.
