Financial regulators in Saudi Arabia are looking to ease rules for mergers and acquisitions in order to inject an additional boost to the economy as the country embarks on a $300bn privatisation programme that will put itself firmly on the map for investors, the chairman of the Capital Market Authority (CMA) has told GlobalMarkets.
Work is going on behind the scenes to encourage the listing of foreign companies on the Tadawul stock exchange, as well as redrafting M&A regulation, that will bring other sources of foreign investment.
The flotation of a 5% stake in state-owned oil company Aramco that is valued at $1tr-$2tr could raise up to $100bn which, together with other assets totalling $200bn, will bring a windfall to the Gulf nation as the country continues to diversify its economy under Vision 2030, its ambitious reform programme.
Mohammed A El-Kuwaiz acknowledged that opening up what had been one of the most closed and conservative societies in the world would leave the country more exposed to the whims of international investors, but said it was necessary.
“This level of growth comes with risks — risks of firms failing — but we have a degree of tolerance for failure and efficient mechanisms to deal with it,” he said. “Saudi Arabia can no longer be an island.”
El-Kuwaiz identified the redrafting of M&A regulation a top priority of the CMA over the next 12 months. “The previous M&A regulations had been viewed by many as a hindrance to activity and therefore consolidation among publically traded firms,” he said. “Our hope is that the new regulations make it vastly easier for transactions to be completed.”
M&A growth forecast
The most notable change is that acquisitions no longer require the unanimous agreement of shareholders which was previously a huge barrier to any activity, he added.
El-Kuwaiz said knowledge of the new regulation had spurred a resurgence in the amount of discussions and preparation among Saudi-based companies looking to engage in M&A activity.
While he would not point to specific sectors, he said transactions would be between both local and international companies.
Saudi Arabia has the potential to demonstrate the ninth highest growth level for M&A and IPO activity until 2020, according to a report by the US-Saudi Arabian Business Council (USSABC). It noted that Saudi Arabia was projected to see a 53% increase in M&A activity growth over the next five years.
M&A transaction volumes slowed down from an average of 12 per quarter in 2014, to seven per quarter in 2015 and 2016, due to economic challenges ensuing from the fall in oil prices from highs of $112 per barrel to below $40 in January 2016.