Saudi Arabia’s regulator set to ease share listing, M&A with new rules

Saudi Arabia plans to unveil regulations to make share listings easier and encourage mergers and acquisitions among publicly traded companies in the Middle East’s biggest bourse.

The regulations will simplify the time taken to float a company in the kingdom and also do away with some of the stringent conditions that have constrained M&A among listed companies,

according to Capital Market Authority chairman Mohammed El-Kuwaiz.

“The expectation is that we will be able to pass these rules in a month’s time,” El-Kuwaiz, formerly a management consultant with McKinsey & Co. Inc., said on the sidelines of a Saudi Arabian capital markets event arranged by Deutsche Bank AG in London.

“We are already seeing instances of public companies engaging in discussions in expectation of these regulations.”

Saudi Arabia, the world’s biggest oil exporter, is embarking 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 (Saudi Aramco), the kingdom’s crown jewel, in the hopes it would attract more international investors into its stock market and boost capital markets activity.

IPO Pipeline

“As the privatisation process progresses in the country, we expect to see the IPO pipeline improve significantly,”  Khalid Al Hussan, the chief executive officer of the country’s stock exchange, known as Tadawul, said in a separate interview. “We are already seeing a lot of activity in the parallel market and in the REIT space.”

The regulator is currently reviewing initial public offering applications for about five companies, El-Kuwaiz said, adding that as many as 30 companies have mandated advisers as they consider potential share sales in Saudi Arabia.

The exchange, which itself is planning an IPO, is doing “due diligence” on all aspects of listing and is on track for an offering next year, Hussan said.

MSCI inclusion

Tadawul plans to have a clearing counterparty house operational by 2019, Al Hussan said. It will operate as a separate entity with the capacity to clear trades both for equities and derivatives and will pave the way for future derivatives trading on the exchange, Hussan said.

Saudi Arabia was included by index provider MSCI Inc.’s watchlist in June for potential classification as an emerging market. If Saudi Arabia gets approval next year, it could trigger at least $2.3 billion of inflows from passive funds, Renaissance Capital analysts wrote in a note in June. Feedback from MSCI has so far been positive, El-Kuwaiz said.

The changes implemented by the CMA and Tadawul “will attract additional investor demand and will enhance Tadawul’s chances for MSCI and FTSE emerging market inclusion,” said Tamim Jabr, the chief executive officer of Deutsche Bank’s Saudi Arabian securities unit.

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