The Capital Market Authority (CMA) and the Saudi Arabian General Investment Authority (SAGIA) have signed a Memorandum of Cooperation (the Memorandum) to set up a collaborative framework to be followed by the CMA and SAGIA when preparing the regulatory directives for allowing non-resident strategic foreign investors to own strategic stakes in listed companies’ share capital, a step that comes into play in light of the continuous coordination between the two bodies while taking into consideration the importance of achieving the highest level of cooperation that will serve to contribute to ensuring protection and fairness to capital market participants, and supporting the Kingdom’s investment environment in general.
The Memorandum, which has been signed by H.E Mohammed ElKuwaiz on the CMA’s behalf and by H.E Eng. Ibrahim AlOmar on SAGIA’s behalf, is based on the power vested in SAGIA pursuant to the Foreign Investment Law amongst which are its authority to regulate foreign investments in the Kingdom in terms of its conditions, procedures, privileges, and guarantees, as well as on the power vested in the CMA pursuant to the Capital Market Law amongst which are its authority to regulate and develop the capital market, to supervise companies listed on the exchange, and to issue the rules and regulations governing their conduct.
Pursuant to the Memorandum, the CMA has undertook the mandate to prepare the regulatory directives for allowing non-resident foreign investors to own strategic stakes in listed companies’ share capital while coordinating with SAGIA in this regard. These directives will serve to set up an agreed upon regulatory framework, through which strategic foreign partners who enjoy the required experience and expertise, and who will contribute to transferring knowledge and technical know-how are attracted; thereby opening up new markets for companies listed on the exchange, and allowing them to realize their full potential.
It is worth noting that, for the purposes of the Memorandum, non-resident strategic foreign ownership means owning 10% or more of a company’s share capital that has voting rights attached to it, unless there are specific sectors prohibit such an ownership by law, and without prejudice to the negative list, which prohibits foreign investments in certain sectors.
Additionally, the scope of applying the planned directives, according to the signed Memorandum, will include buying, acquiring, or owning strategic stakes in the share capital of a company listed on the exchange by a non-resident foreign investor, while taking into account the aforementioned foreign investment restrictions.
To this end, the CMA stated that it has already undertook the preparations to start drafting the required directives for allowing foreign investors to own strategic stakes in listed companies in accordance to the practices adopted in this regards, and in line with CMA’s gradual approach to liberalize the capital market. Especially that the CMA has recently implemented a number of changes to the capital market’s foreign investment landscape pursuant to the Financial Leadership Program launched by the CMA as a part of its role within the national transformation plan and the Kingdom’s 2030 vision, the most recent of which included further flexing the QFI’s Rules and successfully completing a number of initiatives that will make the Saudi capital market more compatible with its international counterparts.
The CMA further indicated that the planned directives will be different from its notable QFI Rules in terms of scope and application, as they will be catered for strategic foreign partners looking forward to owning 10% or more in a listed company’s share capital, and this arrangement, through the planned directives, will not be exclusive to financial institutions.
And for the purposes of this event, the Chairman of the CMA’s Board of Commissioners, H.E. Mohammed ElKuwaiz said during the event that: Most international capital markets welcome foreign direct investment and, in fact, encourage it due to the various benefits such a practice entails, including supporting the economies of the countries represented by these markets. The Kingdom is currently undergoing great efforts to diversify its economic base and further develop its investment environment, as indicated in its serious steps to restructure its economy in line with the national transition plan. The Kingdom further aspires to attract foreign investments as well as diversify its economy in light of its 2030 vision. As such, this initiative comes into play while also taking into consideration the CMA’s philosophy to encourage cooperative development mindset with other regulatory agencies and with capital market participants including listed companies, investors and advisors, bearing in mind that we are committed at the CMA to respond to these parties needs and aspirations in the light of the CMA’s statutory authorities.
Whereas, the Governor SAGIA, H.E. ENG. Ibrahim AlOmar, said: "We seek in SAGIA to solidify our relations and enhance joint work areas with various governmental agencies and institutions with the aim of facilitating business practices and improve the investment environment within the Kingdom. As such, we are pleased to sign the Memorandum with the CMA to allow non-resident foreign investors to acquire strategic stakes in listed companies' share capital. Through this step we look forward to attract foreign investors to invest in the capital market sector and stimulate the investment environment within the Saudi capital market, and within the framework of the strategic objectives to achieve the Kingdom’s 2030 vision and to diversify the economy pursuant to the national transformation program 2020. SAGIA to this extent is committed to developing its services and providing the best international practices to enable alternatives to benefit from The Kingdom's unique opportunities by attracting more investments and sharing experiences in a number of promising investment sectors.
