An ambitious 2024-2026 roadmap proposed by Saudi Arabia’s Capital Market Authority (CMA) will emphasize Sukuk and alternate private financing for national initiative projects, together with the creation of more liberal entry points for foreign investors and fund managers.
The CMA said these initiatives are aimed at “strengthening the position of the Saudi financial market at the global level and increasing the attractiveness” to both local and foreign investors – to increase privately-sourced funding volume as a percentage of total public project financing.
Such a focus includes “diversifying financing options through alternative asset funds, and developing the Sukuk and debt instruments market as one of the most important means of diversifying sources of financing for public and private sector projects”.
Acknowledging the need for a more inclusive and fairer regulatory environment for all investors, the CMA said such efforts can stimulate secondary market activities and complete the investment products system for different investor segments.
Foremost among these efforts would be to enable companies of various types, including companies and assets owned by the government, to offer their shares and list them in the market – to reflect the true size of the contribution of these companies to the Kingdom’s economy.
The CMA will facilitate listing of special purpose acquisition companies in the parallel market and allow the offering of Saudi depositary certificates in the Saudi financial market, in addition to preparing the regulatory framework to organize the process of offering and listing different categories of shares plus proposed organizational concepts for mergers and acquisitions.
Apart from increasing the number of companies listed, the CMA sees such initiatives as raising the market size and value of free shares while also increasing the volume of privately-sourced financing.
Seeking Sukuk and the debt instruments market as a critical way of diversifying sources of financing while providing additional investment options, the CMA noted Saudi Arabia is still a small player in comparison to the sizes of global debt markets.
“Relatively speaking, the average size of debt markets as a percentage of GDP for G20 countries at the end of 2022 is 114%, compared to 18% in the Kingdom.
“Global debt markets are also characterized by their high liquidity, while the average liquidity for corporate debt instruments in the Kingdom is 7.4%, which is a low average compared to the average liquidity in other markets, which is 14%, which means that there is a possibility of improving liquidity levels to match global markets.”
Beyond establishing a regulatory framework for green, social and sustainable debt instruments to stimulate the diversity of issuances and issuers for Sukuk and debt, the CMA further proposed that such instruments be allowed to be issued by closed-end real estate funds.
To this end, the CMA will be amending a number of regulatory provisions in the Investment Funds Regulations and the Real Estate Investment Funds Regulations, “including examining the appropriateness of allowing financial market institutions licensed to practice investment management activity to distribute their foreign funds in the Kingdom; for the purpose of raising the competitiveness of the asset management industry in the Kingdom”.
Further, the CMA is keen to attract international investors to invest in the Saudi financial market – by reviewing the requirements for restrictions on foreign investors’ investments, in addition to preparing regulations for the inter-registration of investment funds.
With these initiatives, the CMA aspires to “increasing the percentage of international investor ownership of the total market value of free shares, and increasing the percentage of international investor ownership in Sukuk, debt instruments, and investment funds”.
Other plans include the feasibility of offering an offshore license in the Kingdom for securities business, in addition to identifying the regulatory requirements for this license and the restrictions and incentives associated with it.
