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The strategy looks to push sukuk and debt issuances and widen the investor base
CMA looks to boost Saudi capital markets with new three-year strategy: The Capital Market Authority (CMA) issued on Thursday a new strategy for 2024-2026 outlining a basket of measures to boost Saudi capital markets’ size and investor base while also improving governance. The strategy includes pushes to increase sukuk and debt issuances, lure in international investors, and boost secondary market activity while improving governance and protecting investor rights, according to the strategy report (pdf).
GO DEEPER- EnterpriseAM Saudi had exclusive coverage of CMA Board Commissioner Abdulaziz Abdulmohsen Bin Hassan and Saudi Exchange CEO Mohammed Al Rumaih’s comments on the growth of Saudi capital markets over the past several years. Speaking at the EFG Hermes Annual Conference in London last week, Bin Hassan noted that the priorities moving forward as regulators work on “continuously improving and developing the market” is increasing efficiency, adopting the best international practices, and improving infrastructure.
Snapshot of 2023: Saudi capital markets were capitalized at SAR 964 bn at the end of 2023, the report says. Most of this value (SAR 759 bn) was in holdings of sukuk and debt instruments, followed by ETFs (SAR 189 bn) and shareholdings (SAR 16 bn).
Boosting sukuk + debt market is a priority: The Saudi debt market remains underserved, the CMA says in its strategy, representing just 18% of GDP versus a G20 average of 114%. In order to bridge the performance gap between Saudi debt markets and G20 peers, the CMA plans to establish regulatory frameworks for ESG debt instruments, streamline issuances and subscriptions, improve governance and regulations, and pursue policies that enable real estate and investment funds to issue additional debt.
Despite growing 78% from 2019 to 2023, the Kingdom’s assets under management (AUM) ratio continues to lag behind G20 peers, the CMA notes. The authority plans to tweak regulatory frameworks to allow greater flexibility in fund structures while also enabling new transactions involving public and traded close-ended mutual funds.
Reeling in foreign investments: Foreign investments in Saudi’s capital markets have grown 88% from 2019 to 2023, reaching SAR 488 bn, with the majority of those investments representing shareholdings. The CMA is eyeing lowering barriers to entry for international investors in coordination with the Tadawul while rolling out regulations for cross listing funds and issuing offshore investment licenses.
Fintech: The CMA plans to finalize the model for robo-advisors and expand their deployment within a sustainable environment. This includes creating and rolling out models for distributing investment funds and real estate investment funds on a broader scale. Additionally, the model for collective financing through debt instruments will be developed and expanded. It plans to enable open finance applications by establishing a comprehensive regulatory and technical framework for secure data sharing.
Supporting capital market growth: The authority outlined several initiatives to broaden market scope, including the listing of SPACs on the Nomu parallel market, the trading of Saudi depositary receipts, and refining regulatory frameworks for other types of share offerings and listings. These undertakings come in a bid to increase the number of listed companies, boost market cap, and increase options available to investors.
Safeguarding investors: The strategy also looks to boost transparency and compliance with market regulations, as well as means for individual and class action compensations while cutting the time needed to resolve disputes, noting that 579 investors received SAR 245 mn in compensatory payments in 2023. Also on the agenda are updates to governance codes and requirements for registered auditors.
Risk factors that can disrupt the plan: Changes in tax and zakat systems might affect market attractiveness, while competitive options abroad could deter international investors. There are also potential challenges relating to recruiting skilled professionals, meeting sustainability standards, alongside generalized risks of geopolitical and macroeconomic shocks, capital flight, and cyberattacks.
