As the Saudi Stock Exchange (Tadawul) prepares to open up to direct foreign investment for the first time, Japanese investment bank Nomura has been authorised by the country’s Capital Markets Authority (CMA) to offer indirect access to Saudi equities via p-notes.
At present, foreign direct investment on the Tadawul is not allowed. However, since 2008, foreign investors have been able to buy Saudi shares indirectly using total return swaps via licenced brokers. The CMA is currently reforming Saudi Arabia’s financial services industry, with direct foreign investment expected before the end of the year.
In the meantime, Nomura is offering clients the ability to gain exposure to the Saudi equities market using participatory notes – equity-linked certificates that allow foreign companies to invest in stocks in Saudi without being licensed to trade there. The holder of the notes does not have any voting rights and details about the beneficiary have to be reported to the CMA, while short positions are not permitted at all.
Agency broker Crédit Agricole Cheuvreux has offered a similar service since January 2010, providing international investors with Saudi p-notes through a partnership with local broker Fransi Tadawul.
“Fuelled by the government’s five-year, US$400 billion infrastructure investment plan, the Saudi economy is expected to continue experiencing healthy growth in the years to come,” said Khaled Al-Khattaf, CEO, Nomura (Saudi Arabia). “Major petrochemical, financial and construction companies in Saudi play an important part in supporting this growth. Nomura’s ability to execute transactions for international institutions via swaps will help facilitate the flow of foreign capital into the Kingdom.”
Nomura was first permitted to launch operations in Saudi in July 2009, providing corporate finance and wealth management services to clients and acting as an agent for overseas securities. In April 2010, the firm opened its office in Riyadh, proclaiming itself as the first Asian investment bank to provide investment banking services in the Kingdom of Saudi Arabia.