Saudi Arabia is likely to see over 50 initial public offerings (IPOs) this year, and has already seen 35 of these so far.
This was revealed by Mohammed Al-Rumaih, CEO of Saudi Exchange, at the EFG Hermes 10th annual investor conference in London on the theme ‘A New Era of Opportunities’.
In 2018, the bourse saw five listings and then it went to eight in 2020, he added. There has been significant growth, which is mainly due to an ambitious program led by the Capital Market Authority (CMA). More companies are now seeing foreign investments. This number has gone up to 10 percent in some cases from zero.
The session included a panel discussion titled ‘Shaping Tomorrow: Insights from Saudi Arabia’s Capital Markets Leaders’, which featured Abdulaziz Abdulmohsen Bin Hassan, board commissioner of the CMA, and Al-Rumaih.
Launch of parallel market Numo
Al-Rumaih explained that there were about 100 companies earlier and these numbers were very small for an economy like Saudi Arabia.
“So, we started this journey and focused on many things such as why companies are not interested in going public. After much evaluation, we realized that these companies have their own reasons, which are pretty much relevant. Although the liquidity was there, but there was no tools for companies to grow,” he said.
For the same, the country established a ‘parallel market’, and worked with the financial institutions to create more ways. For instance, the country has been very successful in direct listings, which reduced the cost and time. “This is certainly very essential for any company which is looking to tap the public market. At the same time, we worked with the government, who supported us by giving providing incentives. With this, the companies choosing to list can avail up to 13 incentives,” Al-Rumaih elaborated.
Diversified listings
Moreover, the best thing about the 35 IPO listings is the diversification. All of them are from diverse industries, have different sizes and different markets. There are ETFs, close-ended funds and REITs.
“In fact, a few years ago, we only had demand market. And, we expect this to continue, as we are increasing the value of becoming a listed company by developing the debt market,” added Al-Rumaih.
He further added that being a listed company, one would have better access to funding, which is essential to a company in its growth stages. It will provide you different options and an edge over the competitors.
“We have a company from one sector, which is doing a successful IPO. And, we expect to have other names within the same industry in few months. And this momentum will continue going forward. As of today, we have 17 applications already approved. They are under the review. Also, we have more than 50 applications. So this pipeline is very healthy and will continue to grow as we are opening up more ways for companies to become listed,” he added.
Push for Qualified Foreign Investors (QFI)
On his part, Bin Hassan stated that Qualified Foreign Investors (QFI) started in the country in 2017 and they faced constraints innitially. However, since then the CMA has worked on it and relaxed the regulations to have more QFIs.
“So, for example, now you don’t have to be a financial institution or any institution who meets the minimum amount requirement of $500 million. This shouldn’t be either on the group level or the management level. And, in terms of legality, any legal person can access the Saudi market as well, through discretionary portfolio management service (DPMs) or through by any authorized financial institution,” he said.
“As of now, we are satisfied where we are now. We have achieved a lot and the strategy and the vision that we put in have worked very well. Going further, we are soon going to announce a strategy in the next few days to enhance this further,” he added.
Read more: Saudi Arabia’s debt market doubles in value to $213.12 billion since 2019
How has Tadawul enhanced market access
Al-Rumaih emphasized that the bourse is continuously enhancing its infrastructure.
“As part of this, we did an enhancement to our post trade system last year, which enabled the market participant to provide more sophisticated product. This is something that the foreign investors are looking for in order to increase their presence in the Saudi market. In addition to that, we continuously spread awareness across Saudi companies about the equity market, debt market and derivatives, etc. In fact, last year we launched the options market. And this is will bring investors who are not investing in a market unless they have the hedging tools in place or the market instruments that will enhance their performance in Saudi market,” he explained.
“Then, there’s also a focus on the ESG disclosure, which we have seen a great increase from our listed company. This also brought more international investments. And, with that, we expect more QFIs to come to Saudi market. So although this market is considered to be restricted, but still, we are getting more investors every week and we are growing our size in the indices,” he added.
In fact, he shared, there were only 50 qualified foreign investors in 2017. Now, that number has gone up to 4,000.
“We are one of the biggest and most active market in the world. In fact, last year we became number one, not just in the Middle East, but combining Europe also in terms of number of listings,” he added.
Moreover, the retail investors who cannot access the Saudi markets because they are not QFI have been provided with ETF in their home market so they can have exposure to the Saudi market.
“This has been very successful. And we intend to replicate this in other markets and vice versa. So we would expect to have Chinese or Asian ATFs in our markets and we are expanding this around the globe,” he concluded.
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