Foreign funds keen to enter Saudi exchange

Foreign funds keen to enter Saudi exchange
Updated 08 May 2015

Foreign funds keen to enter Saudi exchange

Foreign funds keen to enter Saudi exchange

JEDDAH: A trickle, not a flood of foreign money is likely to enter Saudi Arabia’s stock market in coming months as the $575 billion bourse, the Arab world’s biggest, opens to direct foreign investment.
Saudi Arabia is one of the world’s last major markets to open up, and nobody doubts the latent interest among foreign funds.
The plunge of oil prices has slashed the Kingdom’s export revenues but it has not dimmed the long-term attractions of its rapidly growing population or wide range of companies.
If the market-opening causes Saudi Arabia to enter equity benchmarks such as MSCI’s emerging market index, it will attract tens of billions of dollars of new foreign money.
The trouble is, inclusion in the MSCI index is at least two years away.
Moreover, the valuations of many Saudi stocks don’t look particularly attractive to foreign funds at present.
Operational issues such as the rules for settling trades are another obstacle. And by imposing strict foreign ownership limits, Saudi regulators have made clear they don’t want any sudden deluge of international money.
The result is likely to be a cautious trickle of additional foreign funds into Saudi Arabia — perhaps tens of millions or a few hundred million dollars a month, accelerating as MSCI inclusion nears — rather than any sudden surge.
“As they transition from a retail-dominated market to one with more institutions, they want to do it in a way that won’t hurt anybody,” Sanyalak Manibhandu, manager of research at NBAD Securities in Abu Dhabi, said of Saudi regulators’ approach.
“They want to make sure that retail investors don’t get hurt with too much money coming in at the same time.”

INDEXES
At present, non-resident foreigners are limited to indirect investment in Saudi stocks through instruments such as swaps and exchange-traded funds, which can be inconvenient and expensive.
They are estimated to own about 3 percent of the market.
From June 15, they will be allowed to buy stocks directly through licensed institutions. The Capital Market Authority announced rules governing the reform recently.
Saudi Arabia’s entry into global equity indexes is not certain; it would need to satisfy the index compilers in areas such as market liquidity, investor access and transparency.
But expectations for entry are strong enough that MSCI has compiled a provisional list of 18 Saudi stocks for inclusion.
Petrochemicals giant Saudi Basic Industries, National Commercial Bank and Saudi Telecom account for 45 percent of the group.
EFG Hermes estimates the provisional list would give Saudi Arabia a weight of 1.66 percent in MSCI’s emerging market index.
“Assuming allocation by passive and active global emerging market funds at weight, this should translate into $4.2 billion of passive inflows and $16.4 billion of active inflows,” EFG Hermes analyst Mohamad Al-Haj said.
MSCI itself has estimated total inflows due to index entry at $27 billion.
But passive funds would only enter when the inclusion actually took effect; MSCI says the earliest time for this would be June 2017.
Active funds have more flexibility, and in the glow of Saudi Arabia’s market-opening, they may take a fresh look at the country. US asset manager BlackRock announced in October that it would establish a US-listed, exchange-traded fund to invest in Saudi stocks.
But it is not yet clear how much money the fund will raise.
“Active money will probably flow in increments, and will depend on market valuations among other factors,” Haj said.
Valuations are not great at present.
With a forward price-to-earnings ratio of 17.2, Saudi Arabia is pricier than even developed market benchmarks such as the Dow Jones Industrial Average at 16.0 and Britain’s FTSE 100 at 16.5.

REGULATOR
There are other challenges. Short-selling is banned, reducing the ability to hedge, and trades must be settled on the same day — meaning foreigners will need to have large amounts of money on hand before trading, which may be inconvenient given Riyadh’s time zone and its Sunday-Thursday business week.
Many big emerging markets have settlement after two days.
Also, the rules announced this week are restrictive. Foreigners can directly own no more than 10 percent of the market by value — in many other big bourses, they own 20 percent or more — while a single foreign investor can hold no more than 5 percent of any listed Saudi firm, and total foreign ownership of a firm is limited to 20 percent.
The rules are identical in major respects to draft regulations which the CMA released for comment last August. BlackRock said the draft was “overly restrictive and could in fact disincentivise foreign investment in Saudi stocks.”
Disincentivising large-scale foreign buying of stocks may be just what the regulator intends, for now at least.
It wants to avoid the wild swings seen in the UAE and Qatar last year, when those markets’ entry into the MSCI emerging market index caused speculative bubbles to form and burst.
Also, the CMA may be mindful of the political sensitivities of having foreigners build large stakes in some of the Kingdom’s corporate crown jewels.
“Hopefully as the market moves and as the market matures, things could be relaxed,” CMA chairman Mohammed Aljadaan said this week of the possibility of easing ownership restrictions in future.
Saudi officials say they are not opening the market because Riyadh needs the money. Instead, they want to use foreign institutions to stabilize the market, obtain expertise and expose firms to market discipline as the economy diversifies.
The licensing process for foreign institutional investors may also slow fund inflows.
The rules indicate officials will normally decide on applications within 11 days of receiving them, but it is not yet clear how quickly licenses will actually be awarded.
China used a similar Qualified Foreign Institutional Investor system to manage a cautious, gradual entry of foreign funds into its stock market.
Prices of most Saudi blue chips have dropped slightly since the investment rules were announced recently, suggesting local investors’ hopes of profiting from a big influx of foreign money are fading.


GAMI presents growth strategy for Saudi military sector

GAMI presents growth strategy for Saudi military sector
Updated 17 min 28 sec ago

GAMI presents growth strategy for Saudi military sector

GAMI presents growth strategy for Saudi military sector
  • Ahmad Al-Ohali provided an overview of the national military industry strategy, the Industrial Participation Program, and the role of research and technology in Saudi Arabia’s defense strategy
  • H. Delano Roosevelt recalled the long history of cooperation between the US and Saudi Arabia, and predicted that America will continue to play a dominant role in supporting the Kingdom

RIYADH: The US-Saudi Business Council (USSBC) and the General Authority for Military Industries (GAMI) presented an executive virtual webinar on Wednesday titled “Understanding Saudi Arabia’s Military Industry Growth Strategy.”

Moderated by USSBC President and CEO H. Delano Roosevelt, the webinar provided participating US company representatives with an understanding of the Kingdom’s blossoming defense and security sector. 

Ahmad Al-Ohali, governor of GAMI and the event’s featured speaker, highlighted the authority’s role in developing the Kingdom’s military industry sector.

He also provided an overview of the national military industry strategy, the Industrial Participation Program, and the role of research and technology in Saudi Arabia’s defense strategy.

GAMI was established to grow the Kingdom’s military industries sector, in line with the Vision 2030 target of localizing more than 50 percent of defense expenditures by 2030.

GAMI is the regulator, enabler and licensor of the sector, and is responsible for its development and empowerment. 

Since the launch of Vision 2030 just five years ago, Saudi Arabia has achieved significant socioeconomic milestones while showing tremendous progress in transforming many key sectors of the economy. 

As a result of GAMI’s commitment to its mandate, the military industries sector has rapidly transformed and is now on a steady path to becoming a major contributor to Saudi Arabia’s non-oil gross domestic product. 

Al-Ohali emphasized the breadth of opportunities that Saudi Arabia’s defense localization presents to global investors and US defense partners.

Development of the military industries sector requires a whole ecosystem of research and technology institutions, a skilled workforce and other support functions, in addition to local production capabilities, he said. 

Roosevelt recalled the long history of cooperation between the US and Saudi Arabia, and predicted that America will continue to play a dominant role in supporting the Kingdom through future strategic relationships.

He said the USSBC will continue facilitating connections between US and Saudi companies, and educating American businesses about the benefits of engaging in the Saudi market.


SABIC, BASF discuss plastics circular economy in Riyadh

SABIC, BASF discuss plastics circular economy in Riyadh
Updated 23 June 2021

SABIC, BASF discuss plastics circular economy in Riyadh

SABIC, BASF discuss plastics circular economy in Riyadh
  • SABIC is working with UK-based company Plastic Energy to build its first commercial unit in Geleen
  • Chemicals giant focuses on recycling plastics

RIYADH: SABIC and BASF, two of the world’s largest chemical producers, met in Riyadh to share insights into their respective programs to develop circular economy solutions for the plastics industry.
SABIC shared progress it has made with TRUCIRCLE, a collection of processes that allow for the certification of polymers created through recycling of used and mixed plastic, certified bio-based renewable polymers, certified renewable polycarbonate (PC), and mechanically recycled polymers.
BASF discussed ChemCycling, a project to develop a pyrolysis technology that turns plastic waste into a secondary raw material called pyrolysis oil. The German multinational also explained how its plastic additives facilitate mechanical recycling of plastics.
SABIC is working with UK-based company Plastic Energy to build its first commercial unit in Geleen, The Netherlands, which will produce TRUCIRCLE certified circular polymers from recycled plastic.
“TRUCIRCLE has been introduced as a way to collectively showcase our circular innovations and help manufacturers reduce plastic waste through the adoption of a range of sustainable material solutions,” said Mark Vester, SABIC’ global leader circular economy. “It forms part of our circular economy business and is aligned with the UN Sustainable Development Goal of Responsible Consumption and Production.”


Humvee maker strikes military vehicle deal with Egypt

Humvee maker strikes military vehicle deal with Egypt
Updated 23 June 2021

Humvee maker strikes military vehicle deal with Egypt

Humvee maker strikes military vehicle deal with Egypt
  • The company will study the feasibility of developing an in-country assembly and manufacturing capability to allow Egypt to replace or supplement its existing Humvee fleet

DUBAI: Humvee manufacturer AM General has struck an initial agreement to help develop the production of military vehicles in Egypt.
The deal with the Egyptian Ministry of Military Production is expected to become a long term partnership to develop and build tactical vehicles in-country, the US-based company said in a statement on Wednesday.
The company will study the feasibility of developing an in-country assembly and manufacturing capability to allow Egypt to replace or supplement its existing Humvee fleet.
“Today’s signing ceremony further solidifies our long-standing relationship with the government of Egypt,” said AM General President CEO Andy Hove. “We look forward to applying our manufacturing and design expertise to help grow the Egyptian automotive industry.”
The agreement is part of a broader push to develop more domestic military manufacturing in Egypt which is already a major defense sector importer. Arab states are ramping up spending on local defense sector investments as part of their economic diversification agendas which aim to create more local jobs while at the same time substituting value-added imports with locally manufactured alternatives.


Oman to grant foreign investors 10-year residency

Oman to grant foreign investors 10-year residency
Updated 23 June 2021

Oman to grant foreign investors 10-year residency

Oman to grant foreign investors 10-year residency
  • Program is open to foreign retirees

RIYADH: Oman has announced a new program under which foreign investors are granted long-term residency, Asharq reported citing a statement by the Ministry of Commerce, Industry and Investment Promotion.

The Investor Residence program will be for a period of five to 10 years, subject to renewal, and is open to foreign retirees, the ministry said.

The program, starting in September, aims to attract quality investments according to clear and specific controls.


Abu Dhabi commissions solar farm in West Africa’s Togo

Abu Dhabi commissions solar farm in West Africa’s Togo
Updated 23 June 2021

Abu Dhabi commissions solar farm in West Africa’s Togo

Abu Dhabi commissions solar farm in West Africa’s Togo
  • The Mohamed Bin Zayed Solar PV Complex is expected to power around 158,000 homes and businesses in the country

DUBAI: An Abu Dhabi-funded solar plant in Togo, West Africa is now fully operational, state news agency WAM reported.

The Mohamed Bin Zayed Solar PV Complex, a 50-MW project financed by the Abu Dhabi Fund for Development (ADFD), is expected to power around 158,000 homes and businesses in the country.

The country’s first solar plant is located in Blitta, Togo, and spans around 92 hectares in the African nation’s Centrales region.

The new clean energy source will reduce the community’s reliance on firewood and charcoal, and aid Togo’s national agenda to increase renewable energy share by 50 percent by 2025, and to double it by 2030.

ADFD provided 55 million dirhams ($15 million) in concessionary loans to finance the project, which was developed by Amea Togo Solar, a subsidiary of the UAE-based clean energy developer Amea Power.

The funding is part of ADFD’s joint facility with the International Renewable Energy Agency (IRENA), where the pair vows to support the development of renewable energy projects around the world.

“Africa holds tremendous promise for renewable power generation, which can bring improved energy access and reliability of supply while creating jobs and economic opportunity,” IRENA’s Director-General Francesco La Camera said.

In 2020, ADFD and IRENA signed loan agreements worth 121 million dirhams with the governments of Togo, Niger, and Liberia to advance clean energy in Africa.