Oportunity Arabia 11 Thursday 2nd October 2014 Basil Ghalayini Chairman and CEO BMG Financial Group

1. BMG Financial Group
The Saudi Stock Exchange and Foreign Investment
Basil Ghalayini, Chairman & CEO, BMG Financial Group
Opportunity Arabia 11
Edinburgh, October 2nd 2014

2. Saudi stock market opens to
international investors in the first
half of 2015
Diversification of the Saudi economy remains a top priority
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3. Introduction
 Numerous policy initiatives launched by Saudi authorities as
investments are intended to lessen dependence on oil in the future.
 Focus on improving the business climate with the goal of attracting
private sector involvement in production
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4. Saudi Arabia and Foreign Investment
Saudi Arabia became a member of the World Trade Organization in
2005 becoming the largest recipient of foreign direct investment in
the Gulf and Middle East.
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5. What Makes Saudi Arabia The Perfect Destination
For Investment Opportunities?
The Saudi stock market is potentially an attractive asset-class
allocation opportunity for international investors seeking exposure to
one of the world's wealthiest nations
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6. Qualified Foreign Investor Eligibility
Article 6(a) of the Capital Market Authority Draft Rules provides that
an applicant must be a foreign legal person that is either:
A bank
A brokerage or securities firm
A fund manager
An insurance company
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7. Qualified Foreign Investor Eligibility
 An applicant must generally have assets under management of not less than
(US$ 5 billion), although the CMA may reduce this amount to (US$ 3 billion) at
its discretion.
Must demonstrate 5 years of experience in securities-related activities and
investment.
 No single Qualified Foreign Investor (QFI) may hold more than 5%. of the
shares of any company traded on the Tadawul.
 Foreign investors (QFIs, foreign investors investing through swap arrangements,
and foreign residents in the Kingdom) may not hold in aggregate more than 49%
of the shares of any company traded on the Tadawul.
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8. Investment Limits
 Foreign investment in stocks issued by all Saudi companies listed on
the Tadawul may not exceed 10 % of the “market value” of such stocks at
any given time.
 The maximum proportion of the issued share of any particular issuer whose shares
are listed that may be owned by QFIs (Qualified Foreign Investors) is 20%.
 These limitations will be primarily relevant to certain sectors such as
• mining-related services
• commercial agencies
• real estate investment projects in the two holy cities (Makkah Al Mukkaramah
and Al Madinah Al Munawarah)
• media
• printing
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9. Tax Law
 The Saudi Income Tax Law (Art. 10) states that capital gains realized from
disposal of securities listed on the Tadawul is exempt from income tax.
 It is yet to be determined whether the Department of Zakat and Income Tax
(DZIT), the regulatory authority responsible for enforcing the Income Tax Law, will
extend the said exemption to apply to capital gain realized by QFIs.
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10. What Makes Saudi Arabia The Perfect Destination
For Investment Opportunities?
Inflation has been controlled, falling from 5.1% in 2009 to 3.5%
in 2013
Over the years, be it begged to US dollar, the Saudi Riyal has been
stable versus many of the world’s major currencies
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11. Strong Economy and Perfect Investment Environment
Saudi Arabia is ranked 5th in the world for fiscal freedom according
to World Economic Forum
It’s the 5th most rewarding tax system in the world according to
World Economic Forum
One of the world’s 20 largest economies G20 (19th) and the largest
economy in the MENA region
One of the world’s fastest growing countries with economic
growth expected to be 4.2% in 2015 according to IMF.
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12. Strong Economy and Perfect Investment Environment
Significant foreign investor interest due to the low exchange rate
risk with US Dollar, as Saudi Riyal is begged to the US Dollar
 34% rise in the Tadawul Index this year
Fitch rating upgrade from AA- to AA
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13. Strong Economy and Perfect Investment Environment
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The largest free market in the MENA
Represents 25% of total Arab GDP
It has 25% of the world's oil reserves
22nd out of 185 countries for the overall ease of doing business
globally, according to World Economic Forum.
1st for ease of registering property and the largest recipient of
Foreign Direct Investment in the Arab world according to World
Economic Forum
Low government debt. Official reserves are around $700bn

14. Promising Stock market
Saudi Market Index (TASI) has achieved remarkable return during
2014 (34%), and over the last five years (80%) as compared to
major stock indices such as S&P 500 and FTSE.
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15. Promising Stock market
TASI 5 years performance
TASI has picked up momentum since 2013, especially after the Q2
results. The uptick in performance of domestic sectors can be
attributed to the government’s expansionary policies as well as
global factors, especially expectations of continued steady
economic growth in US.
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16. Promising Stock market
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17. Promising Stock market
Saudi companies listed on the Tadawul recorded the highest annual
profit in its history last year, equal to 103 billion riyals ($27bn)
Earnings are also potentially tax free as Saudi Arabia would be
designated as offshore for UK investors. The Kingdom does not
enforce direct income tax on expatriates or its domestic workforce.
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18. Promising Stock market
Saudi stock market is well diversified, from impressive
petrochemicals companies which are the world’s most cost-effective
petrochemicals sector to consumer companies that
are not only dominant players in the Saudi Kingdom, but also strong
players in the GCC and surrounding regions
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19. Promising Stock market
Strong Financial System: regulated by SAMA and CMA. It is worth
mentioning that commercial banks are well capitalized to withstand
any downturn with high credit rating due to strong fundamentals
Companies in sectors such as power, water and healthcare will go
public, adding more balance and breadth to the market
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20. Effects of Foreign Institutional Investors Entering
the Saudi Stock Market
Foreign Institutional Investors will bring more liquidity and enhance
efficiency of the market
Discipline in the market: demand higher level of disclosures and
accounting standards
Better corporate governance and transparency
High quality research about macroeconomic and firms analysis
Sophistication and maturity to the market will reduce volatility and
speculation
Encourage businesses to go public
According to Deutsche Bank, this would result in $35 billion inflow to
the Saudi Stock Exchange
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