JEDDAH, 22 March 2006 — The Capital Market Authority announced yesterday that it would allow firms to split their shares five for one. In a statement posted on its website, the CMA said that in accordance with directives from Custodian of the Two Holy Mosques King Abdullah, the minister of commerce and industry and the president of CMA agreed to present a proposal to the king changing the nominal share value of all joint-stock companies listed on the Saudi stock exchange (Tadawul) from SR50 to SR10.
Coming on the heels of the announcement to allow non-Saudi residents to trade directly in the stock market and with large number of IPOs this year, analysts said these were positive moves but they would like to see more on the regulations side.
“The splitting will make the market value of the shares more affordable for people especially small investors, thus expanding the base of investors, which will increase the demand and eventually increase the market value of the shares,” said an analyst who did not want to be named.
The splitting will also increase liquidity and the movement of the stocks and allow small investors to buy shares in leading companies that have a high market value, according to the analyst.
He does not expect foreign investors to rush into the market just yet. “The purpose of allowing them is not to salvage the market as some suggested but to comply with such agreements as WTO that Saudi Arabia has signed and which require opening the market to foreign investors.”
Abdul Aziz Al-Mutlaq, CEO of Yazi Bank, a new Saudi and Gulf Islamic bank to be established in Bahrain, agrees. “We will see a difference in the market once foreigners enter within a month because these foreign investors have their own strategy and agenda,” said Al-Mutlaq.
He considers these recent decisions to be long in the waiting. “It will increase money circulation, bring in more funds, and bring classes and tiers of investors on to the stock market. Small investors will be affected the most as they will now move from the lower tier to the higher tier of companies,” he said.
Some reports claim that foreigners would not be able to take part in IPOs and perhaps might be excluded from blue-chip stocks such as SABIC and bank. Al-Mutlaq finds that prospect disappointing.
“Cross border investment is healthy and we should not put restrictions. We need more legislation to liberate the market,” he said.
CMA officials said they would be announcing soon whether there would be investment restrictions on foreigners.
Other analysts also found the market’s reaction to the recent announcements positive. “After the announcement that foreigners can begin trading Saturday, the market reacted positively,” said National Commercial Bank Chief Economist Said Al-Shaikh. “But because of what happened before, foreigners will be reluctant to come in now.”