Exclusive: Saudi Arabia’s Tadawul open to stake sale to international exchanges

But bourse CEO says the exchange will not exercise such an option unless a sale adds "100 per cent value" to its business

The chief of Tadawul says the bourse may consider stake sale to other exchanges. Faisal Al Nasser / Reuters

The Saudi Stock Exchange (Tadawul), the Arab world’s biggest bourse, is open to selling a stake to an international exchange, a move it would consider based on the added value to the US$440 billion bourse, its chief executive said.

"The exchange won't take this step unless it is 100 per cent value added to Tadawul," Khalid Al Hussan told The National in Riyadh. "We believe that we are big as far as this region [is concerned], most liquid, so if we are going to add the element of an exchange to our exchange, it should be a clear added value and just not because we need to attach our name to a big exchange."

Tadawul is home to one of the world’s top petrochemical’s producers, Saudi Basic Industries Corporation (Sabic), and the kingdom’s financial sector heavyweights such as Al Rajhi Bank and National Commercial Bank. It is preparing to host Saudi Aramco next year on its trading platform, when the state-controlled oil producer sells shares to the public in what is slated to be the biggest IPO in the history.

Tadawul, which expects its market capitalisation to climb beyond US$1 trillion in the next five years, according to Mr Al Hussan, has received interest from international exchanges in the past but is not engaged in ongoing discussions at moment.

“There have been discussions not an actual offer,” he said. “We are open always. I mean, every exchange is open to look at this if there is a trigger of added value,” he said, noting that some of the past transactions between the exchanges, however, have led to questions in terms of their success.

Saudi Arabia, the region’s biggest economy and the Opec’s top oil producer, is trying to transform its economy to cut its dependence on the sale of hydrocarbons to generate revenues. Development of the country’s capital market is part of Riyadh’s overhaul agenda.

Tadawul, which started allowing foreign qualified investors limited access to listed equities in 2015, is gradually easing rules as it pursues its “target operating model” through amending its operations and regulations. Changes already made or about to be introduced include new corporate governance rules; adoption of the industry standards used to group companies by industry; settlement cycles; and enabling foreign investors to participate in share floats.

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“I think the reforms today being undertaken by the capital market will position Tadawul differently in the next three to five years,” Mr Al Hussan said.

The next step, he said, is setting up a clearance house that will look at both equity and derivatives trade in the kingdom.

“With this we will have the whole value chain of any capital market or any exchange business – trading, which is the exchange, the securities depository centre which is already a subsidiary of Tadawul and the clearing house,” he said adding that with that infrastructure the exchange will be able to introduce more sophisticated products.

Tadawul is already speaking with many clearing houses to ensure it fully understands the requirements of investors and the market participants, as it is building the set up to suit the demands of the exchange rather than following a text book model.

“We have a relationship with clearing houses and we are speaking to exchanges and established derivatives markets as well,” Mr Al Hussan said. Tadawul, which is preparing for its own IPO, is on track to achieve “readiness” for the public float that will make it only the second listed bourse in the region after the Dubai Financial Market.

“The progress is as per plan,” he said, declining to give a timeline as to when the IPO can take place and noting that the final decision will be taken by the Public Investment Fund, which is the sole owner of the bourse.

“The prerequisite is the decision by the shareholder, like any other company that is going public.”