Saudi bourse opening to boost IPO, debt markets

15/06/2015 00:58 AST

The opening of Saudi markets will likely encourage companies that prefer primary listings while raising the level of disclosures and giving debt markets a boost as investors, financiers and owners become more comfortable.

The size of the Saudi market, which opens its $550 billion (about Dh2 trillion) equities market to foreigners on Monday, is equal to the size of the South African, Russian or Turkish bourses. It is the one of the last few markets to open its doors to international institutions. Analysts say the benefits are many.

“I think the opening up of Saudi markets would encourage companies to come up with initial public offerings, and also raise the bar for compliance and disclosure standards,” Saleem Khokhar, head of equities at NBAD’s asset management group, said.

He added that “the regulator is quite strong and would tighten up the disclosure norms slowly but surely.”

Mohammad Shabbir, head of equity funds & portfolios at Rasmala Investment Bank concurred.

“The Saudi market is quite regular in bringing IPOs at regular intervals and I’m sure this would increase going forward as local investors would have more access to primary listings,” Shabbir said. “I think the speed would increase.”



Gradual rise in liquidity

Analysts expect liquidity to come in gradually and to gain pace after the market is upgraded to Emerging Market status.

“[The] Saudi [markets] will see a more gradual opening up as people get access to those markets. As [the market] goes [for] emerging market status in 2017, we could see money necessarily having to flow,” Khokhar said.

Franklin Templeton expects a weightage of 3-4 per cent for the Saudi market after it is upgraded.

“[Regarding the] Saudi [market] within the current framework, we estimate that [it] could command anywhere between 3-4 per cent of weightage in the MSCI Emerging Market [index],” Salah Shamma, head of investments at Franklin Templeton Investments Corp. “As we open the market to qualified financial investors, Saudi would be a strong candidate to be upgraded to emerging market status.”

Global index providers like the MSCI and the S&P Dow Jones have stand-alone indices for the market currently. Arqaam Capital expects flows of $40 billion over the next five years.

Better inflows in the secondary market would open up opportunities for exit opportunities for private equity investors. According to Shabbir, markets could also be revitalised as long as the pace of IPOs increases.

Analysts expect the opening up to also improve financing opportunities and allow entities to revisit their businesses’ risk ratings while improving the range of options available.

Meanwhile, the regulator will allow institutional investors with $5 billion of assets under management to invest directly in the stock markets, with the regulator retaining the discretion to limit it to $3 billion.

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