Whereas, previously all foreign investment was limited to a maximum of 49% of a listed company on the Saudi Stock Exchange (the "Tadawul"), the CMA issued instructions on 26th June 2019 (the "Instructions"), effectively removing (subject to certain conditions) such limitations.
In summary, the Instructions:
- do not apply to Qualified Foreign Financial Institutions (QFI) (i.e., foreign banks, insurance companies and brokerage and securities companies that can qualify pursuant to the Rules for Qualified Foreign Financial Institutions Investment in Listed Companies dated 15/7/1436H corresponding to 4/5/2015G), GCC nationals and companies that are majority owned by GCC nationals, GCC government entities or companies that fall under the definition of GCC entities as set out in the resolution of the Supreme Council of the in its 15th session approved by the Council of Ministers Resolution number (16) dated 20/1/1418H.
- define a Foreign Strategic Investor as a foreign investor (other than a QFI) that has a direct ownership percentage in the shares of a listed company with the intention of contributing towards promoting the financial and operational performance of such company.
- require that a Foreign Strategic Investor satisfy the following conditions in order to own shares (without any limitations) in a listed company:
- it must be established or licensed in a country that applies regulatory and supervisory measures similar to those applied by the CMA or are accepted by it. In this regard the CMA has sole discretion in determining whether any regulatory and supervisory measures adopted in the home country of a Foreign Strategic investor are similar to those applied by it.
- it must have both a client account and a Depositary Center Account (means an account with the Saudi Arabian Depositary Center Company (Edaa)).
- fulfil any other conditions that the CMA requires.
- a Foreign Strategic Investor will have to abide by any limits on investment as set forth in the constitutional documents of the listed company it wishes to invest in.
- a Foreign Strategic Investor will also have to abide by any other legislative limitations on foreign ownership. Traditionally, other regulators such as the Saudi Arabian Monetary Agency applied restrictions on foreign ownership in banking and insurance sectors (amongst others) and it remains to be seen how such regulators will apply the Instructions.
- the Instructions place restrictions on the disposal of shares owned akin to a lock up period (traditionally placed on founding shareholders of a listed company) whereby a Foreign Strategic investor cannot dispose of any owned shares until the lapse of two years from the date of ownership of the shares.
Although the issuance of the Instructions by the CMA opens up the doors for foreign investors to come into what was a very closed market it remains to be seen how the CMA will implement the Instructions given that it still has wide authority to decide on whether a particular Foreign Strategic investor meets its conditions.