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Newsmakers

Saudi Arabia’s Stock Exchange Market Moves Forward with Reforms

Goal is to make Saudi Arabia less dependent on oil income and attract more foreign investors to the country’s capital markets.

By Poonkulali Thangavelu

Saudi Arabia is moving ahead with various reforms to its stock exchange market, many of which are slated to go into effect by the end of the second quarter. The reforms aim to make Saudi Arabia less dependent on oil income and attract more foreign investors to the country’s capital markets.

Saudi Arabia also expects that the reforms will bring market efficiency, transparency and better corporate governance, and make the Saudi Stock Exchange, or Tadawul, better aligned with international standards and help get it included in emerging markets indices such as the Morgan Stanley Capital International (MSCI).

“It is vitally important that Tadawul’s market participants, both domestic and foreign, have access to a transparent and exceptional trade environment that conforms to the highest international standards,” said Khalid Abdullah Al Hussan, chief executive officer of Tadawul. “We have aggressively moved forward with a number of initiatives to strengthen corporate governance, improve investor relations capabilities of Saudi corporates, and bring Saudi Arabia’s trade settlement cycle into line with standard practice in a number of developed markets.”

Some of the reforms include:

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  • The adoption of the Saudi Capital Markets Authority’s corporate governance rules issued in February. These rules serve to enhance shareholder and board member rights, as well as increase transparency and oversight for corporates.
  • Investor relations training for the stock exchange’s 24 companies that have the most international exposure and liquidity. This will focus on transparency and disclosure for these corporates, and make them more attuned to investor relations.
  • Amending the settlement cycle for listed securities to enhance investor safety and to be more aligned with settlement durations for many international markets.
  • Enabling qualified foreign investors to take part in Saudi Arabia’s domestic initial public offerings, through the country’s “qualified foreign investor” program.
  • The launching of a parallel equity market called “Nomu” that will offer lighter listing requirements and be an alternative avenue for companies to go public
  • Enabling custodians to reject settlement of unconfirmed trades executed by brokers by enhancing the “independent custody” model
  • Enabling delivery of securities only if payments are made, through a “delivery versus payment” approach
  • Allowing for borrowing and lending of securities, as well as covered short selling
  • Doing away with a “cash prefunding” requirement for specific investors and leaving the terms for cash availability to be contracted between the parties involved. This aims to better align with international standards and standardize institutional investor trading processes.

In January, Tadawul also formally went with the Global Industry Classification Standard (GICS) that makes it easier to compare companies and sectors across markets.

Since Saudi Arabia opened its markets to qualified foreign investors in 2015, Tadawul has drawn 56 international financial institutions, according to the Saudia Arabia stock exchange.

Al Hussan noted, “As part of the Kingdom’s efforts to achieve emerging markets status and demonstrate genuine engagement with institutions, Tadawul has conducted three roadshows to date in the US, Europe and Asia with more than 250 participating investors, which together represent at least USD$18.05 trillion in investable assets. Based on the positive feedback and interest received to date, we hope to see a continued rise in qualified foreign investor applications and registrations through year end.”

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Home > News > Asset Allocation > Preqin: Global Private Equity Real Estate Deal Flow Declines in 1Q 2017
Asset Allocation

Preqin: Global Private Equity Real Estate Deal Flow Declines in 1Q 2017

North America sees downturn of deals, while Europe posts highest aggregate total since 1Q 2016.

By By Amrita Sareen-Tak

Global private equity real estate deal flow declined in the first quarter of 2017, compared to 4Q 2016, according to Preqin data. Nearly 568 deals reflecting a combined total of $38 billion in assets were completed by the end of March, a 33% decrease in total deal size compared to the previous quarter. The aggregate deal value was the lowest recorded since the first quarter of 2014.

“Certainly, a climate of high valuations and intense competition are not aiding fund managers as they search for assets that offer the potential of outsized returns,” Andrew Moylan, head of real estate products at Preqin told CIO. “Furthermore, uncertain macro-economic conditions on either side of the Atlantic have seen many managers adopt a wait-and-see approach with the market still experiencing some volatility.”

While North America saw a downturn in deals, European deal flow was on the rise, with 205 transactions worth a combined $15 billion for the quarter. This was the highest aggregate total recorded since the end of the first quarter of 2016. About 63% of investors current consider Europe as offering the most attractive real estate investment opportunities.

In terms of sectors, office assets saw an uptick in demand, while capital committed to residential properties halved relative to the previous quarter. Value-added followed by opportunistic and distressed-oriented funds attracted the greatest amount of capital during the quarter.

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Going forward, more than half of institional investors surveyed by Preqin expect to allocate $100 million or more to private real estate funds in the next 12 months. Nearly 57% plan to commit to at least four or more funds in this time period.

Moylan also remains bullish on investor appetite for private equity real estate.

“Private equity real estate fund managers currently hold a record $247 billion of dry powder, and two-thirds of those surveyed at the end of 2016 stated that they intended to increase their investment activity over the course of 2017,” he said.

“As such, it seems likely that deal flow will increase as the year progresses and managers continue to adapt to current market conditions. The obstacles that inhibited activity in Q1 will not disappear, but fund managers do still believe there are attractive opportunities in real estate, despite these challenges.”

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