Swap Agreement Framework Saudi Arabia

Historically, foreign ownership of the shares of listed companies in the kingdom has traditionally been a highly regulated system. Until the introduction of QFI rules in 2015, foreign investors could not invest directly in Tadawul listed securities, but could only invest indirectly through swap agreements with persons authorized by the CMA. The expansion of equity holding is part of the Kingdom`s efforts to open its capital markets to international investors and reduce its dependence on oil-based income. The introduction of the ISP guide is an important step towards consolidating Tadawul as the main exchange in the MENA region to ensure that foreign investors wishing to invest in the region do not face excessive regulatory barriers. Mohammed El-Kuwaiz said, “Companies wanted to take strategic stakes, but they didn`t have a legal framework, so we created one.” In addition, cross-border offers are becoming more frequent. The successful completion of the sale of shares in the commercial operator Arabian Centers Company, which is part of the Fawaz Alhokair Group, is the first bid in the United Kingdom under SEC Rule 144A, which allows securities to be sold primarily to qualified institutional buyers (QIBs) in the United States. In addition, it is reported that at least six Gulf companies have expressed interest in listing on the Saudi stock exchange. As explained above, the ISF`s instructions do not set a minimum or maximum ownership limit for strategic participation, and ISPs are exempt from the 49% limit of foreign owners set by QFI rules. However, the following restrictions apply to FSIs investments: According to Mohammed El-Kuwaiz, “Strategic investment conditions apply to all unlisted shares on the Saudi capital market for only three categories”: under the new rules, foreign ownership of shares is no longer limited to qualified foreign investors (QFIs) (i.e.

financial companies with at least $500 million in assets under management); ISFs can take shares in publicly traded companies by buying shares directly on the market or through private transactions and IPOs. The new rules also removed all minimum caps or caps for strategic investors, the only restriction being that investors must hold their shares for two years before they can sell. For ISPs who already hold shares in publicly traded companies, the two-year ban is not relevant unless they decide to add shares to their current share. In this case, they must also comply with the new prohibition period. According to the CMA, an ISF is a foreign corporation that wishes to hold a strategic stake in publicly traded companies in Saudi Arabia. The objective of a strategic participation is to contribute to the promotion of the financial or operational performance of the listed company. “We hope that this new decision will further stimulate diversification of investors in the local capital market, including strategic, financial, foreign and Saudi investors,” said Mohammed bin Abdullah El-Kuwaiz, Chairman of the Board of Directors of the CMA of Saudi Arabia.