Identifier
Created
Classification
Origin
08RIYADH1325
2008-08-31 03:13:00
CONFIDENTIAL
Embassy Riyadh
Cable title:
SAUDIS EASE RESTRICTIONS ON FOREIGN INVESTMENT IN
how-toVZCZCXRO2398 PP RUEHDE RUEHDIR DE RUEHRH #1325 2440313 ZNY CCCCC ZZH P 310313Z AUG 08 FM AMEMBASSY RIYADH TO RUEHC/SECSTATE WASHDC PRIORITY 9092 INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE RUCPDOC/DEPT OF COMMERCE WASHDC RUEATRS/DEPT OF TREASURY WASHDC
C O N F I D E N T I A L RIYADH 001325
SIPDIS
DEPT PASS TO USTR
DEPT FOR NEA/ARP AND EEB/IFD/OIA
E.O. 12958: DECL: 08/26/2013
TAGS: ECON EFIN EINV PGOV PREL SA
SUBJECT: SAUDIS EASE RESTRICTIONS ON FOREIGN INVESTMENT IN
STOCK MARKET
Classified By: DCM David Rundell for reasons 1.4 (b) and (d)
C O N F I D E N T I A L RIYADH 001325
SIPDIS
DEPT PASS TO USTR
DEPT FOR NEA/ARP AND EEB/IFD/OIA
E.O. 12958: DECL: 08/26/2013
TAGS: ECON EFIN EINV PGOV PREL SA
SUBJECT: SAUDIS EASE RESTRICTIONS ON FOREIGN INVESTMENT IN
STOCK MARKET
Classified By: DCM David Rundell for reasons 1.4 (b) and (d)
1. (SBU) SUMMARY: As part of a broader effort to attract
international investment in their stock market, the Saudi
Capital Markets Authority approved a plan under which foreign
investors can purchase Saudi securities, but without voting
rights. Foreign investment firms with offices in Saudi
Arabia will be in the best position to take advantage of this
welcome liberalization of the market. END SUMMARY.
2. (U) According to August 21 media reports, the Saudi
Capital Markets Authority (CMA) approved a plan under which
Saudi financial institutions would be allowed to enter into
swap agreements with foreign investors, providing them with
indirect access to the Saudi stock exchange (the Tadawul).
While the Saudi institutions will retain legal ownership of
the stock, they will pass both risk and profit to the foreign
party in exchange for a commission. The agreements cannot
exceed four years in length. Historically, foreign investors
have been required to hold both a Saudi residence permit and
an account with a Saudi bank before they can invest in the
Tadawul. As a consequence, in July, trades by non-Saudis
constituted less than four percent of total volume. The CMA
is expected to provide additional details on these agreements
in the next few weeks, including the percentage of a Saudi
company which may be held by foreign investors and more
details on the how the agreements will be structured.
3. (U) Foreign firms with Saudi-registered offices, who
already have access to a broad base of international
investors, will be in the best position to capitalize on this
initiative. Deutsche Bank announced August 25 their
intention to offer Saudi securities to their overseas
investors as soon as the CMA issues its final regulations.
4. (SBU) Embassy contacts in the banking sector describe the
plan as relatively straightforward and similar to agreements
used in larger, more established stock markets. They
identified the lack of voting rights for the foreign investor
as the key difference in the proposed Saudi agreements.
Initially established in 1994, the Tadawul has been fairly
volatile until recently, increasing 700 percent between 2002
and 2005, then declining by more than 50 percent in 2006. It
currently has a market capitalization of approximately $500
billion.
5. (C) COMMENT: This step towards the greater liberalization
of capital markets here in Saudi Arabia is a positive
development. It comes just days after the Tadawul began
publishing the names of investors holding more than five
percent of a firm on their website. We believe these
developments reflect not only a desire among Saudi leaders to
continue opening to the outside financial world, but also to
attract outside investment in an attempt to boost the Tadawul
All-Share Index, which is currently down more than 20 percent
in 2008. END COMMENT.
GFOELLER
SIPDIS
DEPT PASS TO USTR
DEPT FOR NEA/ARP AND EEB/IFD/OIA
E.O. 12958: DECL: 08/26/2013
TAGS: ECON EFIN EINV PGOV PREL SA
SUBJECT: SAUDIS EASE RESTRICTIONS ON FOREIGN INVESTMENT IN
STOCK MARKET
Classified By: DCM David Rundell for reasons 1.4 (b) and (d)
1. (SBU) SUMMARY: As part of a broader effort to attract
international investment in their stock market, the Saudi
Capital Markets Authority approved a plan under which foreign
investors can purchase Saudi securities, but without voting
rights. Foreign investment firms with offices in Saudi
Arabia will be in the best position to take advantage of this
welcome liberalization of the market. END SUMMARY.
2. (U) According to August 21 media reports, the Saudi
Capital Markets Authority (CMA) approved a plan under which
Saudi financial institutions would be allowed to enter into
swap agreements with foreign investors, providing them with
indirect access to the Saudi stock exchange (the Tadawul).
While the Saudi institutions will retain legal ownership of
the stock, they will pass both risk and profit to the foreign
party in exchange for a commission. The agreements cannot
exceed four years in length. Historically, foreign investors
have been required to hold both a Saudi residence permit and
an account with a Saudi bank before they can invest in the
Tadawul. As a consequence, in July, trades by non-Saudis
constituted less than four percent of total volume. The CMA
is expected to provide additional details on these agreements
in the next few weeks, including the percentage of a Saudi
company which may be held by foreign investors and more
details on the how the agreements will be structured.
3. (U) Foreign firms with Saudi-registered offices, who
already have access to a broad base of international
investors, will be in the best position to capitalize on this
initiative. Deutsche Bank announced August 25 their
intention to offer Saudi securities to their overseas
investors as soon as the CMA issues its final regulations.
4. (SBU) Embassy contacts in the banking sector describe the
plan as relatively straightforward and similar to agreements
used in larger, more established stock markets. They
identified the lack of voting rights for the foreign investor
as the key difference in the proposed Saudi agreements.
Initially established in 1994, the Tadawul has been fairly
volatile until recently, increasing 700 percent between 2002
and 2005, then declining by more than 50 percent in 2006. It
currently has a market capitalization of approximately $500
billion.
5. (C) COMMENT: This step towards the greater liberalization
of capital markets here in Saudi Arabia is a positive
development. It comes just days after the Tadawul began
publishing the names of investors holding more than five
percent of a firm on their website. We believe these
developments reflect not only a desire among Saudi leaders to
continue opening to the outside financial world, but also to
attract outside investment in an attempt to boost the Tadawul
All-Share Index, which is currently down more than 20 percent
in 2008. END COMMENT.
GFOELLER