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Saudi Arabia to let foreign investors participate in IPOs

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[DUBBAI] Saudi Arabia, home to the Gulf's biggest stock market, will allow foreign investors to subscribe to initial public offerings in the kingdom from January.

The Capital Market Authority has approved regulations on book-building in IPOs that include qualified foreign investors, which will be implemented Jan. 1, according to a statement posted on the regulator's website on Thursday. Financial advisers "may apply these instructions on any offering before that date" with approval from the issuer, according to the statement.

Saudi Arabia is opening one of the world's most closed stock markets to increased international participation after oil prices halved in the past two years. The Tadawul Stock Exchange started allowing limited foreign direct investment in June last year under rules that govern which entities can invest and how much of each company and the market they can own, and will next month ease restrictions on who can qualify as a foreign investor.

The IPO rules are "in line with previous moves to liberalize the stock market and allow for greater foreign investor participation," said Fahd Iqbal, a Dubai-based analyst at Credit Suisse Group AG. "It would be difficult, in our view, for the domestic investor base to absorb all the part- privatizations that the government has planned, most notably Aramco."

Saudi Arabia Oil Co, the energy giant known as Aramco, controls one-fifth of the world's petroleum reserves and is thought to be worth more than US$2 trillion, making it the world's most valuable company. The kingdom intends to sell up to 5 per cent of Aramco as soon as 2017, according to the country's influential Deputy Crown Prince Mohammed bin Salman.

Regulations taking effect on Sept 4 cut the amount of assets foreigners must have under management to invest directly in the nation's stocks to 3.75 billion riyals from 18.75 billion riyals. They will also allow individual foreign investors to own not more than 10 percent of shares outstanding in a single company, up from 5 per cent.

Sovereign wealth funds and university endowments will be allowed to invest under the new rules. The regulations also include the option for qualified foreign investors to engage with either a Saudi or non-Saudi portfolio manager to oversee their investments, including those from the six-nation Gulf Cooperation Council, of which the kingdom is a member.

The Tadawul All Share Index has dropped 9.9 per cent this year, the worst performance among GCC equity gauges.