JEDDAH, 24 March 2006 — Non-Saudi residents seeking to trade in the Saudi stock market (Tadawul) would be prohibited from participating in initial public offerings (IPOs), according to the Capital Market Authority (CMA) regulations announced yesterday. Although the expected outcome of allowing non-Saudi residents to invest in the local stock exchange is generally positive, experts consider the announced regulations unclear and they say that regulations are needed to bring stability to the market especially after the recent correction.
The stock market, however, recovered slightly yesterday. The Tadawul All-Share Index (TASI) closed 33.57 points or 0.21 percent higher at 15,895.11 after dropping to 15,096.92 points just few minutes before the close.
The index has lost 817.53 points or 4.89 percent so far this year after closing at 16,712.64 points on Dec. 31, 2005. Over SR3 billion worth of shares changed hands yesterday compared to SR7.43 billion on Wednesday and SR20.4 billion on Tuesday in heavy trading.
Out of 79 stocks traded, only shares of four companies edged higher while all other shares declined. Al-Rajhi Bank shares jumped 4.93 percent to SR2,448, Saudi Basic Industries Corp. by 4.83 percent to SR1,520, Aldrees Petroleum & Transport Services Co. by 4.93 percent to SR511 and Saudi Telecom Co. by 4.82 percent to SR1,000.
The CMA posted on its website yesterday the regulations on opening an investment portfolio for residents to trade in the stock market. Residents should have valid iqamas and local bank accounts; they can open only one investment portfolio. The regulations state that all nationalities are to be treated the same.
It also specified that the resident is allowed to subscribe in capital increase shares, and did not mention IPOs of shares in newly listed public companies. The resident would have the right to vote in the assemblies and to be nominated for membership in the board of directors unless company policies state otherwise.
The documents required to open the portfolio and establish the investor are: filling and signing the form for establishing the investor, which includes information on his nationality, date of birth, active bank account number, and permanent address; verification from the bank of the information in the form; a copy of the iqama and passport; and a letter from place of work signed and stamped.
These regulations concern individual residents only, according to CMA, “which means that a foreign company cannot trade under its name, so CMA has not allowed foreign companies to own or speculate in Saudi shares,” said an analyst. Establishing the investor’s information is done through the Deposit Center after verifying the information continued the CMA regulations. It also stated that the signature of the transactions manager or his representative inside the bank is required on the form to be sent. The portfolio would be temporarily stopped once the iqama expires and would be reactivated when it is renewed, the CMA regulations state.
Another condition is that portfolio management has to be conducted personally. Transferring from one portfolio to another is also not allowed. And finally, CMA states that all regulations for opening monetary accounts issued by the Saudi Arabian Monetary Agency apply on these procedures.
“Although allowing expatriate to buy into IPOs might have encouraged them more to enter the Saudi stock market, I don’t think that IPOs are much of an incentive because usually the person ends up with two or five shares which is not much, so it is not a big issue,” said an analyst on condition of anonymity.
A more rigid restriction though, according to the analyst, is tying the portfolio activity with the iqama even though he understands the reason for that. “The bank account is also tied to the iqama, but sometimes if the passport expires before the iqama the bank still freezes the account which means also freezing the portfolio account. All this might cause problems in managing the account,” said the analyst.
The regulations do not restrict the legal foreign residents from buying shares in any company, however the same rules would apply on them as to Saudis. For example, if they own more than 5 percent of a company’s shares they would need to get CMA permission, according to President and CEO of Financial Transaction House Faisal H. Alsayrafi.
Alsayrafi said he considers these restrictions on residents regarding IPOs as only for the time being, but eventually CMA would allow them to buy into IPOs. Once there are more than 100 companies listed, they have to open it in accordance with WTO requirements,” said Alsayrafi to Arab News.
On the performance of the market, Chief Economist at National Commercial Bank Said Al-Shaikh said the correction that happened was not due to lack of liquidity. “What is needed is other measures that will bring stability to the market,” said Al-Shaikh.
He suggests creating market makers, such as funds by the Public Investment Fund, the GOSI and the Pension Fund, which would allow a continuity of buying and selling and a spread between the bid and asking price for a margin of trading. Another suggestion is to allow companies to buy back shares and do reverse splitting to boost confidence.
