opportunity arabia 2014: basil ghalayini

BMG Financial Group

The Saudi Stock Exchange and Foreign Investment Basil Ghalayini, Chairman & CEO, BMG Financial Group

Opportunity Arabia 11Edinburgh, October 2nd 2014

http://www.tanmiyat.com/index.html

Confidential2 BMG Financial Group

Saudi stock market opens to international investors in the

first half of 2015

Diversification of the Saudi economy remains a top priority


Numerous policy initiatives launched by Saudi authorities as investments are intended to lessen dependence on oil in the future.

Focus on improving the business climate with the goal of attracting private sector involvement in production

Introduction


Saudi Arabia became a member of the World Trade Organization in 2005 becoming the largest recipient of foreign direct investment in the Gulf and Middle East.

Saudi Arabia and Foreign Investment


What Makes Saudi Arabia The Perfect Destination For Investment Opportunities?

The Saudi stock market is potentially an attractive asset-class allocation opportunity for international investors seeking exposure to one of the world's wealthiest nations


Qualified Foreign Investor Eligibility

Article 6(a) of the Capital Market Authority Draft Rules provides that an applicant must be a foreign legal person that is either:

A bank

A brokerage or securities firm

A fund manager

An insurance company


Qualified Foreign Investor Eligibility

An applicant must generally have assets under management of not less than (US$ 5 billion), although the CMA may reduce this amount to (US$ 3 billion) at its discretion.

Must demonstrate 5 years of experience in securities-related activities and investment.

No single Qualified Foreign Investor (QFI) may hold more than 5%. of the shares of any company traded on the Tadawul.

Foreign investors (QFIs, foreign investors investing through swap arrangements, and foreign residents in the Kingdom) may not hold in aggregate more than 49% of the shares of any company traded on the Tadawul.


Investment Limits

Foreign investment in stocks issued by all Saudi companies listed on the Tadawul may not exceed 10 % of the “market value” of such stocks at any given time.

The maximum proportion of the issued share of any particular issuer whose shares are listed that may be owned by QFIs (Qualified Foreign Investors) is 20%.

These limitations will be primarily relevant to certain sectors such as• mining-related services• commercial agencies• real estate investment projects in the two holy cities (Makkah Al

Mukkaramah and Al Madinah Al Munawarah)• media• printing


Tax Law

The Saudi Income Tax Law (Art. 10) states that capital gains realized from disposal of securities listed on the Tadawul is exempt from income tax.

It is yet to be determined whether the Department of Zakat and Income Tax (DZIT), the regulatory authority responsible for enforcing the Income Tax Law, will extend the said exemption to apply to capital gain realized by QFIs.


What Makes Saudi Arabia The Perfect Destination For Investment Opportunities?

Inflation has been controlled, falling from 5.1% in 2009 to 3.5% in 2013

Over the years, be it begged to US dollar, the Saudi Riyal has been stable versus many of the world’s major currencies


Strong Economy and Perfect Investment Environment

Saudi Arabia is ranked 5th in the world for fiscal freedom according to World Economic Forum

It’s the 5th most rewarding tax system in the world according to World Economic Forum

One of the world’s 20 largest economies G20 (19th) and the largest economy in the MENA region

One of the world’s fastest growing countries with economic growth expected to be 4.2% in 2015 according to IMF.


Significant foreign investor interest due to the low exchange rate risk with US Dollar, as Saudi Riyal is begged to the US Dollar

34% rise in the Tadawul Index this year

Fitch rating upgrade from AA- to AA



13

The largest free market in the MENA

Represents 25% of total Arab GDP

It has 25% of the world's oil reserves

22nd out of 185 countries for the overall ease of doing business globally, according to World Economic Forum.

1st for ease of registering property and the largest recipient of Foreign Direct Investment in the Arab world according to World Economic Forum

Low government debt. Official reserves are around $700bn



Promising Stock market

Saudi Market Index (TASI) has achieved remarkable return during 2014 (34%), and over the last five years (80%) as compared to major stock indices such as S&P 500 and FTSE.



TASI 5 years performance

TASI has picked up momentum since 2013, especially after the Q2 results. The uptick in performance of domestic sectors can be attributed to the government’s expansionary policies as well as global factors, especially expectations of continued steady economic growth in US.



Saudi companies listed on the Tadawul recorded the highest annual profit in its history last year, equal to 103 billion riyals ($27bn)

Earnings are also potentially tax free as Saudi Arabia would be designated as offshore for UK investors. The Kingdom does not enforce direct income tax on expatriates or its domestic workforce.



Saudi stock market is well diversified, from impressive petrochemicals companies which are the world’s most cost-effective petrochemicals sector to consumer companies that are not only dominant players in the Saudi Kingdom, but also strong players in the GCC and surrounding regions


Strong Financial System: regulated by SAMA and CMA. It is worth mentioning that commercial banks are well capitalized to withstand any downturn with high credit rating due to strong fundamentals

Companies in sectors such as power, water and healthcare will go public, adding more balance and breadth to the market



Effects of Foreign Institutional Investors Entering the Saudi Stock Market

Foreign Institutional Investors will bring more liquidity and enhance efficiency of the market

Discipline in the market: demand higher level of disclosures and accounting standards

Better corporate governance and transparencyHigh quality research about macroeconomic and firms

analysisSophistication and maturity to the market will reduce

volatility and speculationEncourage businesses to go publicAccording to Deutsche Bank, this would result in $35 billion

inflow to the Saudi Stock Exchange


"Successful investing is anticipating the anticipations of

others."

John Maynard Keynes (Political Economist)

opportunity arabia 2014: basil ghalayini

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