Image credit: Getty Images
The Capital Market Authority (CMA) of Saudi Arabia has approved a new regulatory framework for foreign investments in securities, imposing a limit of 49 percent on total foreign ownership in any publicly listed company or its convertible debt instruments. However, foreign strategic investors are exempt from this restriction, given they retain their shares for at least two years.
Understanding the distinction between qualified foreign investors (QFI) and strategic foreign investors
A Qualified Foreign Investor (QFI), as defined by the Capital Market Authority, is a non-Saudi investor that qualifies under the criteria outlined in Part (3) of the Rules for Foreign Investment in Securities to invest in the listed shares on the Main Market.
Criteria for QFI as per Part (3) of the regulations:
1) Must be a legal entity.
2) Must possess assets under its own or its group control, management, or custody amounting to SAR 1,875,000,000 (approximately 1.88 billion Saudi Riyals) or more at the time of applying for an investment account. The authority can lessen this asset minimum if necessary.
Definition of Foreign Strategic Investor: A foreign legal entity that intends to hold a direct stake in a listed company’s shares for no less than two years, aiming to enhance the financial or operational performance of that company.
Additional Information:
The CMA recently disclosed these new regulations in Umm Al Qura, the official gazette of Saudi Arabia. This initiative is part of the nation’s effort to manage capital flow while ensuring the stability of its financial markets.
Ownership restrictions and exceptions for strategic investors
The CMA specifies that non-resident foreign investors are limited to a maximum ownership of 10 percent in any listed entity. Furthermore, these investors are prohibited from converting debt instruments into shares unless they belong to authorized investor categories or operate under sanctioned swap agreements.
Typically, foreign strategic investors are long-term institutional entities that possess business or operational interests in the country. They are not subject to the 49 percent foreign ownership limit; however, to avail this exemption, they must maintain their investments for a minimum of two years. This approach aims to attract stable, long-term capital to Saudi Arabia’s market.
Categories of foreign investors allowed
Foreign investment in Saudi Arabia’s main market is restricted to six distinct categories of non-resident investors:
- Qualified foreign investors (QFIs).
- Foreign strategic investors.
- Ultimate beneficiaries of swap agreements with licensed financial institutions.
- Foreign investors associated with CMA-licensed management firms.
- Foreign investors residing in Gulf Cooperation Council (GCC) nations.
- Former residents of Saudi Arabia or other GCC countries who established an investment account during their stay.
This classification is intended to manage market access while allowing experienced or strategically relevant investors to engage effectively.
Rigorous oversight of swap agreements
The regulations implemented by the CMA also outline strict requirements for institutions entering swap agreements. Key stipulations include:
- Complete segregation of client funds and assets.
- Thorough transaction coverage for the duration of the agreement.
- Exclusive voting rights retained by the licensed institution.
- Full compliance with anti-money laundering (AML) regulations.
Discretionary exceptions for unique cases
Cumulatively, the CMA maintains the authority to grant exceptions from any segment of the regulations at its discretion or upon request, which allows for flexibility in exceptional or strategically significant circumstances.