RIYADH, 30 December 2002 — The Shoura Council yesterday passed a draft law allowing the establishment of a formal stock market to replace the existing interbank bourse, the council’s secretary-general said.
The 67-article bill was passed by a majority of the 120-member council in its 47th session and will be referred to the Cabinet for endorsement, Hamoud Al-Badar said following the session. The meeting was presided over by Dr. Saleh ibn Abdullah Humaid, chairman of the Shoura Council.
The bill envisages increasing transparency, accountability and luring foreign investment and supervises the introduction of new investment tools.
The Saudi bourse has the highest capitalization in the Arab world at more than $74 billion, but it has been run by the Saudi Arabian Monetary Agency (SAMA), or central bank, since its establishment in 1985.
The capital market law provides a legal and regulatory framework for all capital-related activities, such as trading in securities. It calls for setting up an “independent” stock market commission.
Under the law, a share holding company will be formed to oversee the market and ensure justice, transparency and protection of funds. The commission would control all matters related to trading in the bourse.
The stock market has so far been limited to a small number of dealers as the overwhelming majority of stocks is concentrated in the hands of the government and business families.
Only 68 firms are listed on the bourse, which economists say has a capacity for more than 200 firms. During the past decade, only 13 new companies were admitted to the market.
For example, there are thousands of industrial establishments in the Kingdom, but only 20 of them are listed on the market.
The Kingdom’s major economic powerhouses, like Saudi Telecom, Saudi Arabian Airlines and the National Commercial Bank, with total assets of more than $70 billion, are not yet listed.
The Saudi government began on Dec. 17 the largest sell-off in two decades by launching the Initial Public Offering (IPO) to sell 30 percent of Saudi Telecom shares for four billion dollars.
Only 27 percent of stocks on the market are “free for trading.” As a result, the number of shareholders has been on the decline.
Although market turnover at the end of 2001 rose sharply by 28.2 percent to $22.3 billion, it still represented less than 15 percent of Gross Domestic Product (GDP).
Economists believe a full-fledged, well-regulated stock market will be an important tool to channel funds back into Saudi Arabia and to provide the necessary financing for mega infrastructure projects.
