Interview: Mohammed Al Rumaih
What does the initial public offering (IPO) pipeline signal about the potential of local capital markets?
MOHAMMED AL RUMAIH: The continued strength of Saudi Arabia’s IPO pipeline – at a time when global markets have seen a slowdown in IPO activity – is an indicator of the market’s resilience and its continued growth potential, which generates interest among domestic and international investors. The year 2022 saw 17 listings on the main market and 32 on the Nomu – Parallel Market, compared to a total of 21 listings in 2021. The new listings came from a diverse range of sectors, such as health care, ICT and industry, in line with the directives of the Financial Sector Development Programme (FSDP) to diversify sectors that are represented on the Saudi Exchange.
The Capital Market Authority had more than 70 applications under review as of early 2023. This pipeline will support the continued diversification of capital markets and enhance liquidity, which will, in turn, further attract investors. The breakdown of local and international investors in the recent IPOs is a representation of the Kingdom’s status as an investment destination. In the fourth quarter of 2022 qualified foreign investor (QFI) trading accounted for 19.6% of the total market’s trading volume.
In what ways can awareness of investment opportunities in capital markets be improved?
AL RUMAIH: Local organisations offer diverse long-term investment opportunities. In this sense, a solid investor relations department, as a necessary business function, is essential for communicating with international investors. Accordingly, the Saudi Exchange launched a comprehensive investor relations toolkit in 2018 based on global best practices, the first of its kind to be published by a stock exchange in the region. The toolkit provides practical tips on developing an effective investor relations programme, as well as information on important regulatory principles and an analysis of how to measure the value of investor relations.
As an exchange, our inclusion in the MSCI Emerging Markets index, the FTSE Russell Emerging Markets Index and other benchmarks indicates investor confidence and interest in the market. Indeed, as of December 2022, 3151 QFIs had accounts in the Saudi Exchange, and the value of foreign investors’ holdings in the main market was over SR346bn ($92.2bn).
By what means can capital markets support economic diversification efforts?
AL RUMAIH: The Saudi Exchange supports the development of a more diverse economy that is less reliant on oil, which puts the market in a better position to capitalise on shifting trends and the emergence of new high-potential sectors. As such, the Saudi Exchange enables diversification by supporting small and medium-sized enterprises (SMEs) that have historically struggled to gain access to capital via public markets. To help SMEs get around high barriers to entry, the Nomu – Parallel Market was launched as an alternative equity platform for organisations looking to list with less stringent requirements. Similarly, the Saudi Exchange facilitates the financing of companies in high-potential sectors and encourages companies from a broad array of industries to list through an incentives programme launched in 2019.
How do you assess the progress made in achieving the capital markets objectives of the FSDP?
AL RUMAIH: A host of market and infrastructure enhancements have been introduced to improve access and efficiency, including investment in products and services, the establishment of linkages with other exchanges to expand offerings and the incorporation of global best practices to enhance foreign investor access. The challenge is ensuring that growth benefits all economic stakeholders in the Kingdom.