Broking house Crédit Agricole Cheuvreux has started offering clients the ability to gain exposure to the Saudi Arabian equities market using proprietary notes (p-notes).
P-notes are equity-linked certificates that allow foreign companies to invest in stocks without being licensed to trade there. While Tadawul, the Saudi stock exchange, still does not permit direct foreign equity trading, CA Cheuvreux is able to gain exposure to the market through swap agreements with local broker Fransi Tadawul, a subsidiary of Banque Saudi Fransi, in which Credit Agricole investment banking subsidiary Calyon has a 31.1% stake. This in turn enables it to issue p-notes to clients.
Cheuvreux’s p-notes are guaranteed by Calyon and are denominated in US dollars, thus avoiding local currency exposure. No pre-funding is required because the contracts settle in dollars via European central securities depository Euroclear. The holder of the notes does not have any voting rights and details about the beneficiary have to be reported to Saudi Arabia’s Capital Markets Authority. Short positions are not permitted.
“We have supplemented our GCC [Gulf Cooperation Council] offering with the addition of Saudi p-notes to provide our clients with another access method to GCC’s principal capital market,” said Ian Peacock, global head of execution services at CA Cheuvreux, in a statement. “We are satisfying an increasing interest from our clients who are looking to invest in the restricted Saudi market region through this simple and convenient structure. These certificates reflect the full economic return of the underlying security and give our clients another product to synthetically invest in Tadawul listed companies.”