Financing the Future – Saudi Arabia looks to grow its capital market
Ahead of FII8’s conference in Riyadh, Sir Martyn Lewis interviewed Nayef Al-Athel, Group Chief Sales and Marketing Officer, of Saudi Tadawul Group, the parent company of Saudi Arabia’s stock exchange, for Inside Saudi. Al-Athel talked about the great strides being made in the Kingdom to help facilitate capital flows into Saudi’s growing capital market.
Sir Martyn Lewis (ML) – Could you highlight some recent achievements and milestones of the Tadawul Group and their drivers?
Nayef Al-Athel (NA) – As an organisation we have gone through three phases in the last decade. First was the foundation: getting our infrastructure up to standard, including building a standalone depository centre and clearing house, which derisks the entire capital market. We’ve upgraded our technology and incorporated many regulatory and operational enhancements, propelling us into a globally recognised capital market.
The second phase was transformational, highlighted by Saudi Aramco’s IPO – the largest IPO ever known to mankind. That IPO put the spotlight on the Saudi Exchange, helping us position ourselves as a top-10 global exchange.
A particular milestone was the transformation of the Saudi Stock Exchange (Tadawul) into a holding group structure integrating four subsidiaries: the Saudi Exchange, depository centre (Edaa), clearing house (Muqassa) and an innovation arm (Wamid). And then listing the group on the Saudi Exchange, leading by example.
The third phase which we are still in is attempting to diversify from just being an equity capital market powerhouse.
ML – Tell me about engagement with non-Saudi companies? How feasible are cross and dual listings?
NA – As a commercial organisation we have an unbelievable appetite for cross listings. Our first cross listing was in collaboration with the Abu Dhabi stock exchange (ADX), listing Americana Restaurants on both ADX and the Saudi Exchange. This was very successful, with much interest from local, regional and international investors. With the seamless flow of liquidity and capital between both markets, we see the case for more of these cross listings. We are now trying to build the right regulatory framework to attract regional and international companies from any jurisdiction. From a regulatory standpoint it is a work in progress, but we are getting really close.
ML – When do you think you will be? Obviously international investors want to know. What are the obstacles?
NA – We have announced guidelines on what needs to happen for cross listings into the Saudi capital market and we are working with the Capital Market Authority (CMA) to recognise models such as depositary receipts and to further liberalise our regulatory framework to be able to attract dual and cross listings from anywhere.
ML – So you can’t make promises, but you are asking international investors
to have faith?
NA – One hundred per cent. I think cross listings will eventually happen more regularly and the doors will be wide open. I’d love to remind international investors of a similar situation. When we first introduced the Qualified Foreign Investors (QFI) programme in 2017, it was very rigid, and we had 50 investors. Now we have thousands of international investors recognised by the QFI programme. That regimen continued to open up as we progressed. I wouldn’t be surprised if this happens for cross listings within the next 12 to 24 months.
ML – How are you supporting SMEs within the Saudi capital market?
NA – We have played a pivotal role. I’m honoured to be part of the team that helped build the Nomu-Parallel Market (the alternative Saudi listing platform with lighter listing requirements). In translation, Nomu means growth. Nomu was a very emotional undertaking for myself and my colleagues. In the first couple of years, there was a big mountain to climb in terms of educating SMEs and investors on the visibility and why Nomu was introduced. Nomu today has 97 listed companies and funded billions of rials to those SMEs. We are very proud that over 20 companies have moved from Nomu to the Main Market.
ML – How quickly would the small entrepreneur get investment?
NA – Our regulatory framework is straightforward and transparent. Its criteria need to be met in terms of having the right financials and documentation in place. However, I understand the challenges companies face in readying themselves for a public offering. And both the Saudi Exchange and Saudi Tadawul Group support these companies in making sure they understand the requirements
to go public.
ML – Saudi Arabia has made considerable progress in fostering technology ecosystems, most visibly in areas like AI and fintech. Could you tell us about recent and upcoming technology IPOs? Also, more broadly, how the sector composition of the exchange and indices are likely to change over time?
NA – I have to credit the efforts being made in the Kingdom towards fostering fintech and, more broadly, innovation. We had 87 fintechs in 2021, today we have over 200. Several fintech companies that have accessed the Saudi capital market have subsequently grown tremendously as part of their journey as a listed company. This year we celebrated another fintech listing within the Main Market with Rasan.
Conversely, very few listings over the past five years have been in the energy sector or banking. These two sectors have historically represented the majority of market capitalisation within the Saudi Exchange. What this means is that we have unlocked sectors such as education, health care and technology, and that’s a huge win for us as a capital market.
ML – How are you aligning your operations with the Kingdom’s Vision 2030, especially as far as sustainability and ESG are concerned?
NA – This year we published our first sustainability report for 2023. Also, as a Group, we’ve done a lot in the gender equality space – around 40% of our recent hires are female, 30% of our workforce is female and 15% of our senior management is female.
ML – How are you going to balance compliance and governance best practice with your ambitious growth aspirations?
NA – Compliance is a cornerstone for us. If you look at
what we have done over the last decade, alongside the CMA, we have executed on more than 700 regulatory changes. These have propelled the Saudi capital market to the top of various standards and league tables for compliance and governance.
ML – Any hiccups along the way?
NA – Of course introducing these regulatory changes over a short time period comes with the challenge of acclimatising to them. We are very proud of the Saudi issuer community and how they’ve coped with the sheer number of changes.
ML – Can you tell us more about the recent CMF Select: Saudi UK Dialogue in London and other events for the group?
NA – As well as running and overseeing the stock market, we have also worked hard over the last four years to build the Capital Markets Forum (CMF) brand. CMF provides opportunities for Saudi and international investors to access the Saudi issuer community and issuers from other jurisdictions. This year we introduced our first ever offshore CMF event in Hong Kong and most recently, on 5 November, the inaugural CMF Select, which is a breakout edition of CMF, took place in London. CMF Select was hosted in partnership with the UK government and the Lord Mayor of London, bringing together many of the leading names in Saudi and UK capital markets to discuss key industry trends, cross-border opportunities and more in front of over 260 attendees. Going forward, there will be multiple CMF events around the world – for example at CMF Select we also announced our partnership with London Stock Exchange Group to host the first CMF London in 2026.
ML – What is your long-term commodity strategy following acquisition of the stake in the Gulf Mercantile Exchange?
NA – We are very excited about this. Currently, we are the ninth biggest global stock exchange but have ambitions to climb higher. Almost all the top-10 global exchanges have a commodities market. Saudi is one of the few that doesn’t. With our strategic investment in the Gulf Mercantile Exchange (formerly Dubai Mercantile Exchange), we aim to build on our strength as a global energy leader and to enable investment in clean energy, such as hydrogen, and commodities that support sustainable energy.
ML – How important are M&As in achieving your strategic objectives?
NA – We view M&A as an enabler. Growth and prosperity need to come from within the organisation. There is much for us to do, and we are barely scratching the surface as a capital market group. Nonetheless, we recently started to be more active within the M&A space because it will help us further diversify into other areas of capital markets.
ML – What steps have you taken in establishing Saudi Arabia as a debt hub for sustainable finance?
NA – The vast majority of what we do today is in equities. If you look at developed markets all over the world, that picture looks a little different. You always have equity financing adjacent to debt financing; it’s a very important element of how markets are structured. So, it’s obvious to us to build our debt space. There’s been a lot of recent changes within our regulations to allow for issuers in the Kingdom to access debt quite easily. We are very bullish about the fortunes of debt investing in our capital market within the next couple of years.
ML – Longer term, what criteria will global issuers and investors use to distinguish between the leading exchanges?
NA – Issuers want easy, seamless access to capital. So, the easier, the more seamless the process is to access capital, the more a market group will be able to attract issuers. Also, issuers desire a strong brand and ecosystem as everyone wants to be around successful companies. Therefore, building that brand will be very important in attracting issuers. Last, but not least, is transparent clear regulations.
If we look at investors, they want governance and transparency: to trust what they are investing in. And I think Saudi Arabia is very solid in this regard.
ML – What is your message to international investors considering investing in Saudi shares?
NA – The Kingdom as an economy has demonstrated unbelievable growth over the past couple of years, and, with the guidance of our government, the future looks bright. And one of the easiest ways to invest in Saudi’s potential is to invest
in our issuer community.