Saudi Arabia to allow listing of foreign shares on its stock exchange

The Capital Market Authority (CMA) has updated its listing rules (80-page / 883KB PDF) to allow foreign companies listed on other exchanges to cross-list on the Tadawul, the country's stock exchange

Previously foreign companies could only list their shares indirectly, for example through joint stock arrangements with foreign companies.

Admittance to the listing remains subject to the discretion of the CMA, which must be satisfied that the listing rules applicable in the company's home country are "at least equivalent" to the Tadawul listing rules. There is currently no guidance on which countries' rules are considered equivalent.

Corporate law expert Alan Wood of Pinsent Masons, the law firm behind Out-Law.com, said that the loosening of investment restrictions reflected speculation in the Gulf that Saudi Arabia was looking to open its stock market to full foreign investment. Investment banks currently in talks with the CMA have slated this development for the end of the first quarter of 2012, he said.

Currently only Saudis and nationals of neighbouring states can invest directly in Saudi-listed companies, however a gradual shift towards liberalisation started in 2010 when share swaps and exchange-traded funds were made available to foreign investors, he said.

Wood said that opening up the Saudi market to foreign companies would be an important step to its securing 'frontier market' status on the global equity index published by MSCI, against which most fund managers benchmark their performance. Seven exchanges in the region – Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar and the UAE - currently share this ranking, which is calculated by reference to size and liquidity.

"As with many other recently announced changes and 'relaxations' in the Gulf, the impact of the measures will depend upon and will only be able to be judged when the detail of what is proposed is available for review," Wood said.

"Having said this, the attraction of obtaining 'frontier market' status in the MSCI rankings is clearly a big incentive for the regional bourses in financial centres."

The financial regulator in neighbouring Qatar announced changes to that country's stock market listing requirements earlier this month, aimed at allowing smaller companies to list their shares more easily on the secondary market.