RIYADH: A package of incentives is to be offered to Saudi companies to list on the Riyadh-based stock market, with more initial public offerings (IPOs) expected next year, according to the CEO of the exchange. The Saudi Stock Exchange, known as Tadawul, expects IPOs to pick up next year, its chief Khalid Al-Hussan told Reuters, while the launch of stock index futures should bring an influx of money from overseas.
Al-Hussan said authorities were working on several initiatives including a package of incentives for local companies to list.
So far this year, the Tadawul — which has a capitalization of around $490 billion — has seen one IPO on the main market and one on the parallel Nomu market.
“The application pipeline of new listings, both in Nomu and the main market today, is very healthy,” Al-Hussan told Reuters.
He was speaking as the Tadawul announced the signing of an agreement with global index provider MSCI to jointly launch a tradable index later this year.
The move is set to serve as the basis for investment instruments including derivatives and exchange-traded funds (ETFs), executives said in Riyadh.
The index will be open to both domestic and international investors, and follows the announcement that the Tadawul is to be upgraded by MSCI to “emerging market” status, in a move tipped to see billions of dollars of foreign investment flood into the market from 2019.
“The joint tradable index will be available in the fourth quarter of 2018,” Al-Hussan told reporters.
“The establishment of this index provides a platform for the development of futures traded and other traded products, in the financial market.”
MSCI said that the index would be based on the broader MSCI Saudi Arabia index series, part of the MSCI Emerging Markets Index.
Tadawul said in a separate statement it would introduce exchange-traded derivatives in the first half of 2019, Reuters reported.
“The creation of the joint tradable index provides a strong foundation for the development of index futures and other exchange-traded products,” said Al-Hussan.
“As the Saudi market is fully integrated into global emerging market indices, including MSCI, the launch of an index will pave the way for ETFs and other products that enable investors to broaden exposure and diversify ... risk while enhancing the overall efficiency of the market.
“The creation of the joint tradable index will be a milestone for launch of financial products, while Tadawul aspires to achieve more.”
He also pointed to the development of the Saudi exchange ahead of an expected initial public offering in energy giant Saudi Aramco, which is set to be the world’s largest listing.
“I think the Saudi stock exchange will continue to develop its markets to be ready for Aramco and other issues,” Al-Hussan added.
Henry A. Fernandez, MSCI’s chairman and chief executive officer, said that Saudi Arabia had gone through a “remarkably rapid period of change” in the past few years.
The Tadawul and MSCI will be working closely in a “win-win” situation, he added.
“This joint index is possible as a result of the Kingdom’s adoption of international standards and desire to create additional investment opportunities for domestic and international investors,” said Fernandez.
“The jointly launched index is a result of the Saudi market applying international standards and desire to provide additional investment opportunities to investors.”
Fernandez added that the composition of new MSCI-Saudi tradable index is not yet fixed, but said that “the index provider will publish standards later.”
The news follows a string of reforms on the Saudi market, including the easing on restrictions on foreign ownership of companies.