Depositary receipts to attract foreign capital to Saudi Arabia: analyst

The Capital Market Authority’s (CMA) decision to publish draft rules for issuing depositary receipts (DR) for local shares is a move that will positively impact the Saudi stock market, if it comes into full force, Mazen Alsudairi, Head of Research, Al Rajhi Capital, Riyadh, told Argaam.

Last week, the CMA published draft rules for public consultation. Feedback and proposals on the draft rules may be sent to the market regulator until September 25, the CMA said in a statement.

“The introduction of DR in the Kingdom, in our view, is positive as it will encourage more foreign investors’ participation in the Kingdom in the long-term,” Alsudairi said.

A DR is a negotiable certificate traded on a local stock exchange but issued by a foreign publicly listed company, enabling investors to hold or trade stocks of foreign-listed companies. In many stock markets, cross listing of shares through issuance of DR has become a common occurrence.

“DR is a product, which, the Saudi regulator might allow in the KSA, allows foreigners to invest in the Kingdom. Therefore, foreign entities/institutions might buy shares in the domestic market (Tadawul) and repackage it, and list abroad,” Alsudairi added.

He said the likely introduction of DR improves Saudi market visibility and appearance in the global markets.

However, he added: “the performance between DR and Saudi index might vary in the near-term, but gradually becomes equal in the medium to long term once the market becomes more efficient.”

In the last quarter (Q2), Tadawul remained the best performing stock market in the GCC with Tadawul All Share Index (TASI) recording a 12 percent improvement compared to the same period in 2017.