Saudi aims to almost double size of stock market

'Saudi is one of the most active markets in the Middle East in terms of IPOs, with companies coming to market, but these are usually relatively small companies.'

The Tadawul All Share Index will be expanded to 250 companies from about 170 at present within seven years. Hasan Jamali / AP Photo

Saudi Arabia plans to nearly double the size of its stock market via a series of IPOs, a secondary market for SMEs, and new investment products, according to the country’s Capital Market Authority (CMA).

Mohammed Al Jadaan, the CMA chairman, told Bloomberg that the Tadawul All Share Index will be expanded to 250 companies from about 170 at present within seven years, boosted by a series of government privatisations and private sector listings.

The Tasi’s market capitalisation will grow to match the size of Saudi Arabia’s GDP within this period, up from its current level of about 57 per cent of GDP, said Mr Al Jadaan, stressing that the government wants to “make sure that the market becomes a real representative of the economy in terms of size”. At the end of 2014, the combined market cap of all listed companies in the US was equivalent to 146 per cent of GDP, according to Bloomberg data.

The government has already announced plans for the listing of a less than 5 per cent stake in Saudi Aramco, likely to occur before the end of 2018.

“Doubling the size of the market is going to depend on the pace of privatisations,” said Mohamed Al Hajj, an equity strategist with EFG Hermes in Dubai.

“Saudi is one of the most active markets in the Middle East in terms of IPOs, with companies coming to market even during the current environment, but these are usually relatively small companies,” he said.

“It’s going to depend on the government’s commitment to listing Aramco and the other big flagship assets. The size of the Aramco float they’re talking about now, that alone could increase Saudi’s free float by 25 per cent to 30 per cent.”

In addition to the new listings, the CMA is also working on rules to introduce derivative products and real estate investment trusts (Reits) by the end of the year.

The regulator is also planning a secondary exchange for small and medium enterprises, to be limited to “sophisticated investors”, according to Mr Al Jadaan.

The plan to overhaul the stock market comes in the wake of an ambitious economic restructuring programme outlined by the deputy crown prince Mohammed bin Salman, designed to ease the burden of lower oil prices. The measures include slashing subsidies and increasing taxes, in an attempt to generate an additional US$100 billion a year by 2020.

But the sheer volume of high-level reforms across the country mean that changes to capital markets may not be implemented to schedule, according to Sanyalak Manibhandu, the head of research at NBAD Securities in Abu Dhabi.

“It’s a very ambitious programme that’s going to take a number of years for it to be implemented,” he said.

“There’s a lot of other reforms that Saudi has announced and it may be that priorities will alter, meaning that changes to capital markets – which can be very difficult to reform – may take longer to complete.”

Mr Manibandhu said that new capital market instruments in other emerging markets are often either not used properly, or enjoyed little take-up within their intended investor base.

* with agencies

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