Thursday, Oct 11, 2012

(This article was first published Wednesday.)

DUBAI (Zawya Dow Jones)--The long-awaited opening of Saudi Arabia's equity market to direct ownership by foreigners may take time as regulators sort out what conditions and qualifications should apply to people who are allowed to invest, according to a senior executive at Deutsche Securities Saudi Arabia.

Saudi Arabia--the largest, most liquid and yet least accessible stock market in the Arab world--is considering opening its stock market to foreign investors in a move that could help turn the local market into a regional trading hub. But when the kingdom will make its final decision on this proposal, which could earn Saudi Arabia the much-coveted MSCI emerging market status, remains uncertain.

"It's going to take a while," Jamal Al Kishi, the chief executive at Deutsche Securities Saudi Arabia, said on Wednesday at a media roundtable in Dubai.

"We do things in a certain way in Saudi Arabia. We ponder, we deliberate, we discuss, and we go through a second round of discussions. The intent is there. It's a question of timing."

Deutsche Securities Saudi Arabia is a wholly owned subsidiary of Deutsche Bank that handles the German financial services giant's equity and debt securities activities in the kingdom. Deutsche Bank is advising Saudi authorities on the market-opening.

While it was clear that foreign investors would be given direct ownership of Saudi stocks--they can own equities at present only indirectly through swap contracts, Mr. Al Kishi said the conditions that will be attached to that ownership were still under discussion.

"I want to buy [Saudi Basic Industries Corp., or Sabic] and I put money and I buy Sabic," he said. "What does that entail in terms of voting rights? How do I do it? Does it become just free, unfettered access to the Saudi capital markets or do we say we want to qualify certain foreign institutions? What are the criteria we should apply to allow investors to come in?"

As the debate over access to the equity market continues, Mr. Al Kishi added that he saw a boom coming in Saudi Arabia's debt capital markets, driven by a surfeit of cash in the hands of investors. Many private and quasi-governmental companies were preparing to issue Islamic bonds, he said, and were only waiting for approval from regulators to do so.

"We see a lot of activity, a lot of inquiry from clients," he said. "I know the backlog that the Capital Market Authority, the authority that governs debt capital markets as well as [equity capital markets], are inundated with a great deal of applications for issuances in the country, predominantly in the form of sukuk, Islamically structured ones."

There have been about $7 or $8 billion of issuances in the country this year, he said, a number he projected would be surpassed next year and grow again in 2014.

Recent Saudi sukuk sales have attracted a flood of investors, making them an attractively priced alternative to bank financing. Saudi Electricity Co.'s $1.75 billion sukuk earlier this year received orders worth more than $17.5 billion, according to the company.

Write to Asa Fitch at asa.fitch@dowjones.com

Copyright (c) 2012 Dow Jones & Co.

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11-10-12 0350GMT