Foreign ownership of Saudi shares studied

RIYADH, May 26 – A senior investment expert said here that the Ministry of Commerce in Saudi Arabia is considering the potential for non-GCC ownership of Saudi shares, keeping in mind the flow of inter- national capital to the Saudi market and increased interest from foreign investors.

Saudi policy makers have observed the success of Thailand, Indonesia and Malaysia who have committed, slowly but surely, the foreign ownership of domestic shares. however, in the case of the Kingdom, this may be restricted to limited foreign ownership of Saudi shares in the initial stages.

Referring to the opening of the Saudi share market, the visiting senior investment advisor of the Geneva-based Bank Leu, John Sand wick, an expert on Middle East economics, told Arab News that “in the next few years, Saudi Arabia is likely to commit foreign ownership of Saudi shares.

Gulf nationals have already been allowed to trade in shares across the GCC region and promote wholesale business activities in any state following the amendments of rules and regulations in the framework of decisions taken by the heads of state of the GCC recently

Regarding shares-trading, Sandwick pointed out that foreign investors in the Kingdom’s share market will be more interested in putting their money primarily in industrial firms, the petrochemical sector, transportation, etc.

The removal of stock market barriers and several trade barriers have been extremely significant in view of the fact that Saudi non- oil industrial sales amounted to $18.1 billion including SABIC’s share of $5.2 billion during 1994. Referring to the changes adopted by the banks on several issues, Sandwick said that the most significant change has been their adaptation of new-generation banking technology.

Moreover, Sandwick observes that the risk management guidelines from the Saudi Arabian Monetary Agency (SAMA) and several international agreements between governments and banks that apply in Saudi Arabia, have subsequently changed. the relationship between Saudi companies and their banks.

Besides the Saudi banks having a greater need to understand the overall composition of their assets, which includes credit extended to the private sector, this understanding allows the banks to extend greater amounts of credit to a broader base of customers.

“In response, companies are showing banks more of their operating, performance- said Sandwick, adding that they are also learning more about themselves and how they can gain increases in efficiency.” Technical analysis of corporate financial data, such as working capital ratios, credit-to-total-asset ratios and cash-flow analysis, allows companies to understand where improvements can be made in a company’s capital structure as well as its management, in order to increase profitability.

Sandwick pointed out that out of the 12 major Saudi commercial banks, about five banks are poorly-committed in terms of rendering financial services. The needs of Saudi companies were managed solely by the corporate banking divisions of the major banks. However, most of the banks have since added corporate finance divisions to their operations.

Predicting a better liquidity situation for Saudi banks in the foreseeable future, he pointed out that with the creation of corporate finance divisions, Saudi banks are becoming much more flexible and interactive in pro- viding financial services to Saudi companies. This is evident from Saudi automobile dealerships.

Sandwick pointed out that an automobile dealer may increase his sales by increasing credit, which is theoretically limitless and the solution was found in asset-securitization. It’s a financing method common in the U.S. and Europe, but especially suited to Saudi business and conforms with Shariah.

Predicting eight percent growth in the Kingdom’s private sector for several years from now, he pointed out that this securitization tool has been an enormous blessing to both automobile dealers and consumers. The consumers ultimately have greater choice and lower costs than they otherwise would have.

“Such techniques can be applied to Saudi furniture companies and home builders, suggested Sandwick, adding that as this technology spreads, Saudi firms and consumers will find more options and lower costs than ever before.

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