RIYADH: Saudi Arabia has issued a draft law that would allow listed firms to buy back their shares, a senior government official said yesterday.
“We added to the existing corporate law regulations governing share buybacks ... People have been demanding this for a long time,” Commerce and Industry Ministry Undersecretary Hassan Agueel told Reuters, confirming a report earlier yesterday by Okaz newspaper.
Analysts and investors have been pushing for the adoption of a law allowing share buyback plans since a crash began in February, 2006, and from which the local bourse has never recovered.
The Arab world’s largest bourse crashed last year to its lowest level in almost five years last year.
“The updated corporate law was submitted to the council of ministers chaired by the king (Custodian of the Two Holy Mosques for approval and then it will be submitted to the Shoura Council,” Agueel said, noting that stock market regulator, the Capital Market Authority, took part in drafting the share buyback regulations.
He could not say when the law would take effect.
He denied however having told Okaz newspaper that only 20 of 126 listed firms have asked the ministry for permission to buy back their shares.
For some analysts a share buyback plan may be a little too late.
Approving share buybacks will not dramatically change the fortunes of the Saudi bourse, said Turki Fadak, a member of the semi-official think tank Saudi Economic Association.
“Investors are thinking more of the current global crisis ... The liquidity squeeze may force many listed firms to opt out and save their cash,” Fadak said.
A company like Saudi Basic Industries Corp. will be more reluctant to embark on a share buyback plan because it relies for a major part on global markets for its revenues, and these are suffering because of weakening global demand.
“Saudi Telecom Co. is different, because it keeps generating cash mainly from the Saudi market,” Fadak said.
Many Saudi listed firms that have cash to spare will want to distribute higher dividend instead of buying back their shares, he said.
Meanwhile, the Saudi stock market continued to surge yesterday. The Tadawul All-Share Index (TASI) advanced 2.62 percent to 5,180 points.
