How Oil and Gas Companies can Optimize Technology Performance and Costs During Oil Price Volatility

Posted in Oil & Gas, Outsourcing, Qatar, Saudi Arabia, Technology, United Arab Emirates

An unexpected surge in production coupled with weakened global demand has resulted in a 50 percent drop in the price of crude oil since June 2014 and currently averaging US$50 a barrel. The Organization of the Petroleum Exporting Countries (OPEC) announced it would leave market forces to determine crude oil price and would not cut oil output. The current oil price is the lowest it has been since Spring 2009. As oil and gas companies begin to feel the pressure of oil price volatility, efforts become focused on reducing capital and operating costs while maintaining, or improving operational services, particular technology services.

In parallel with this trend, the Middle East is one of the world’s fastest growing information technology markets with total technology spend predicted to have exceeded US$32 billion in 2014 and 10.71 percent of such spending attributed to the GCC oil and gas sector. Executives in the oil and gas sector recognise the need to invest in technology goods, software and services in order to maintain competiveness in global energy markets and to protect the critical infrastructure of their companies from cyber security threats. In the foreseeable future this recognition will be balanced against the need to manage or reduce costs associated with technology services.

So how can oil and gas companies achieve this? Here’s four approaches to consider:

1. Effective asset management: Does the company pay maintenance fees for “shelfware”, i.e. software or hardware that was bought in bulk but is not actually being used? Such fees rapidly erode any volume-based discount obtained for buying the software or hardware in the first place and over time can become a significant drain on technology budgets with no corresponding benefit to the company. In addition, the absence of centralised asset management capabilities within a company can sometimes result in the procurement of additional licenses to use software or additional hardware, notwithstanding existing stockpiles of unused software licenses or hardware in a separate part of the company. According to a Gartner research paper from 2013, introducing an effective asset management programme can help companies achieve savings of 30% in associated technology costs within one year. Part of an effective asset management program includes reviewing existing technology vendor agreements to understand the company’s ability to reuse or transfer software and hardware within the company, to return unused software or hardware and to terminate ongoing maintenance and support arrangements related to unused software and hardware.

2. Renegotiate existing vendor agreements: If a vendor agreement is coming up for renewal, or if the company is planning to procure additional goods or services from a vendor then the company should seek to renegotiate the commercial terms previously agreed with the vendor to share the risk caused by the volatility in oil prices. This may be achieved by agreeing on lower rate cards for personnel involved in the provision of services, discounted unit prices for software and hardware and a flexible pricing mechanism that allows the company to reduce its spend with the vendor as needed to reflect changing demand within the company for the vendor’s goods and services.

3. Outsourcing: Outsourcing of a company’s specific technology or business process functions is a proven way of reducing both capital and operating costs. By outsourcing, a company can transfer the need to make significant capital expenditure, such as large investments in technology infrastructure, to their vendor and enter into an arrangement whereby the vendor agrees to provide the outsourced function, like application management and support, back to the customer over an agreed period of time for a lower cost than the customer can itself provide the same function.

4. Cloud computing: The cost-efficiency benefits of cloud computing are widely acknowledged yet concerns relating to data security and integration have impeded large-scale deployment in the region. According to IDC only 30 percent of oil and gas companies operating in the Middle East and Africa have implemented a private cloud solution, and only 15 percent have adopted the public cloud. The cloud is not the solution for all of a company’s technology needs, but can present an effective solution for hosting volume-intensive public-facing components of a company’s technology environment, such as corporate websites and customers apps.

One, or a combination of these approaches, can form the basis of effective strategy for oil and gas companies to deal with the competing challenge of increasing technology performance while reducing technology cost. Execution of such a strategy not only requires collaboration and alignment across a company’s technology, procurement and finance functions, but also requires the involvement of a company’s internal or external lawyers to ensure that the company understands its ability to achieve cost savings in existing vendor agreements and captures agreed performance improvements and cost savings in new or renegotiated vendor agreements, as well as identifying and mitigating risks associated with the procurement of technology.

In addition, execution of any cost-reduction strategy should not sacrifice or dilute a company’s information security and governance mechanisms or increase the risk of the company being subject to a cyber-attack. Cybercrime is, unfortunately, a growing trend in the Middle East and globally and companies must continue to take measures to maintain and strengthen their defences against security vulnerabilities and ensure they have a plan in place to deal with the consequences of a security breach. See our previous blog post “5 Ways to Protect your Business from a Cyber Attack” for more information on this topic.

Latham & Watkins’ technology transactions and outsourcing team has advised on many of the world’s largest and most complex business process, IT and network outsourcing transactions and is ranked as one of the top technology and outsourcing legal practices in the world. Please contact us if you would like to receive further information or discuss this topic further.


What You Need to Know About Abu Dhabi Global Market’s New Draft Regulations

Posted in Banking and Finance, Capital Markets, Regulatory, United Arab Emirates

The Abu Dhabi Global Market, Abu Dhabi’s new financial free zone, located on Al Maryah Island, recently issued a first wave of draft regulations and related consultation papers.

The Global Market’s general approach in the draft regulations follows very closely the  English law model. In particular, the Global Market is proposing to apply English common law and certain English statutes in the Global Market. No draft financial services regulation was included in the first wave of regulation. The draft financial services regulation is expected to follow later this year.

In addition, the Global Market flagged that its initial key anchor sectors will be private banking, wealth management and asset management, which represents a much narrower focus than contemplated in the Global Market’s earlier press releases.

Please click here for more detail on this development.

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Navigating the Risks of Omnichannel Retail

Posted in Intellectual Property

Digital innovation is reinventing the retail experience. IT is changing the way retailers interact with customers by integrating sales and communication channels, enabling in-store digital interfaces and diversifying payment platforms.

As retailers look to fuse existing operational silos in favour of an omnichannel strategy, the role of IT is increasingly recognized as critical to achieving seamless and integrated retail experiences.

Omnichannel retailing combines the bricks and clicks aspects of retail, allowing for multiple, easily accessible retail touchpoints or channels. At the same time, it can effortlessly customize the  customer interface, based on their past purchases and preferences.

Key Considerations for Omnichannel Retail Success

  • Integration: Aspiring omnichannel retailers seeking to connect inventory, supply-chain, order management & distribution, Customer Relationship Management (CRM), marketing and Point of Sale (PoS) systems are likely to face back-office technology integration challenges as traditionally these operational functions have worked autonomously. Yet centralizing these systems is key in achieving an omnichannel strategy. Currently there exists a disconnect between internal technology and business functions. Therefore retailers must align the capabilities of its IT assets with overall business strategy.
  • Investment: Technology investment is too often evaluated from the perspective of cost-reduction. Retailers need to assess the advantages IT can bring to business operations such as service innovation, customer analytics and product development. For example, centralizing all data can enable retailers to more effectively understand customer behaviour and detect purchasing trends which may not be visible to an organization that houses data by department.
  • Innovation: Innovation is quick to outdate. The industry is just beginning to trial and implement digital technologies such as mobile PoS, virtual mirrors, interactive displays and RFID inventory. As such, retailers need to implement flexible and interoperable systems that can adapt and expand with the needs of their business.

Navigating the Risks of Omnichannel Retail

In addition to these strategic considerations, the contract for the implementation of an omnichannel retail system needs to address a number of key commercial, operational and legal risks:

  • Operational and delivery risk including running over budget or time; incompletion; failure of system to meet business requirements; over-engineering, poor quality, inefficient maintenance; and changing requirements over time.
  • Intellectual Property Risk such as ensuring that the retailer has sufficient rights to use the system; owns any bespoke developments or innovations which give it an advantage over its competitors; and is not “locked in” to a relationship with a vendor by virtue of having no rights to use the system should it terminate its relationship with the vendor.
  • Liability risk such as protecting the retailer from third-party claims related to its use of the omnichannel system; ensuring that the retailer may bring a claim to recover its actual losses in the event of a breach by the vendor; and ensuring that the retailer’s exposure to liability from the vendor is commensurate with the fees being paid by the retailer to the vendor.

Each of these risks are significant and result in material losses caused by failure. It is essential that retailers address these risks in agreements with vendors and take great care in determining the manner in which a systems implementation is priced, vendor performance is incentivised and implementation is governed and managed.

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Kuwait Projects to Press Ahead Following PPP Law Publication

Posted in Kuwait, Power, Project Development and Finance

The financial close of the 1500 MW and 105 MIGD Az Zour North independent water and power project (IWPP) in January 2014 served as the trailblazer for the start of the public-private partnership (PPP) programme in Kuwait, representing the first project under the new PPP Law. The development of the Kuwaiti PPP projects market hinges on the publication of the executive regulations to the new PPP law which was published in August 2014. The Director General of the Partnerships Technical Bureau (PTB) suggested that the executive regulations are substantially complete and on schedule for publication in early 2015 at the recent MEED Kuwait Projects conference held in November this year.

Executive Regulations Target 2015 Launch

The new PPP law provides that the executive regulations should be published within six months of the new PPP law, which suggests a long-stop date of sometime in February 2015. According to Kuwait’s National Assembly Financial and Economic Affairs Committee, given Kuwait’s need for mega-financing and advanced technology transfer, all new projects are intended to be implemented pursuant to the new law.

5 Considerations of Kuwait’s New PPP Law

Project developers and lenders should be aware that Kuwait’s new PPP law impacts:

  • Existing Projects: Permitted to continue in accordance with the terms of their concession and related licenses until they expire, or terminate earlier in accordance with their terms but no amendments to the concession or related licenses are permitted after the new PPP law takes effect. This is an important provision for developers of and lenders to existing projects who may be questioning what impact such a change in law may have on their existing projects.
  • New Regulators: The Supreme Committee for Projects will be replaced by the Supreme Committee for PPPs (SCPPP) who will, among other things, approve new PPP projects, handle land allocations for such projects and approve both the successful bidder and the project documents. The PTB will also be replaced by the Public Authority for PPPs (PAPPP) who will, among other things, nominate the successful bidder and prepare the project documents and establish the public joint stock company which will undertake the project. PTB’s transition to a formal government entity should help expedite the procurement process and it is anticipated an updated PPP Project Guidebook will shortly follow to reflect how the new law and executive regulations will impact project procurement and implementation.
  • Shareholdings: The previously set 26 percent floor continues to apply to the successful bidder and although it is a floor, depending on the proposed shareholding offered to bidders, developers (and lenders) will be focused on how the successful bidder secures management and board control in the project company. Conversely, the 24 percent ceiling continues to apply to the relevant public authority, although there is now also a 6 percent floor. In addition, the 50 percent allocation for public offering continues to apply. PAPPP is envisaged to subscribe for the shares allocated to both the relevant public authority and the public.
  • Project Financing: Lenders may be interested to learn that whilst restrictions still exist on taking security over the land allocated for the project, the project company may encumber the other project assets as part of the security package. As was the case under the old laws, it seems only the successful bidder may, with the SCPPP’s approval, pledge its shares in the project company.
  • Extended Term: Whereas the old laws limit the concession period from 25 to 40 years, projects may now have up to a 50 year concession period.

Project Pipeline

New projects such as the 1500 MW and 100 MIGD Az Zour North IWPP Phase 2, the 2500 MW and 125 MIGD Al Khairan IWPP and the 280 MW Al Abdaliyah Integrated Solar Combined Cycle Project along with many others, have been on hold pending the publication of the new executive regulations. Consequently, 2015 could be a very active year for developers and lenders in the Kuwaiti projects market.

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Megatrends in M&A: 3 Key Regional Opportunities

Posted in M&A/ Private Equity, United Arab Emirates

With the rise in frequency of mergers & acquisitions (M&A) in Africa, the 26 percent growth of M&A in the Middle East this year and the global volume and value of M&A at its highest for years in the first three quarters of 2014, global M&A activity is expected to continue its growth through 2014 and into the first quarter of 2015. Latham & Watkins recently hosted, in collaboration with PwC and the Dubai Economic Counsel (DEC), an industry event entitled ‘Megatrends in Mergers & Acquisitions’ at the Dubai International Financial Centre (DIFC). The event was held under the Patronage of Sultan Bin Saeed Al Mansouri, Minister of Economy, UAE.

The following is a brief overview of 3 key regional opportunities discussed at the event:

1. Evolving M&A Landscape in the Middle East

The United Arab Emirates (UAE) is considered the nineteenth most attractive country globally for M&A, with recent significant growth in both inbound and outbound M&A transactions. The growth is attributed to factors such as lower cost of debt, increase in globalization, liquidity and appetite for risk. Aramex, a leading global provider of logistics and transportation solutions based in the UAE, have put in place a successful growth model of franchise and majority acquisition, most recently announcing that revenues were at a 12 percent increase compared with last year.

2. Growth of M&A in Africa

Having had a slow start to the year, M&A deals in Africa have now greatly increased. Although principally the main deals have been in the energy sector over the last few years, there is now a real interest from companies wanting to invest in sectors reaching African consumers, such as financial services, telecoms, healthcare and retail. Private equity is also set to be critical to Africa’s economic growth.

3. Investment Climate in Russia/CIS

The geopolitical conflict happening in Eastern Europe and Western sanctions have slowed investment growth in Russia. As energy assets have been effectively nationalised, there is particular M&A growth in sectors such as consumer and telecoms. For example, investment is expected from specialist investment funds to drive development in the Russian e-commerce market, one of the world’s fastest growing online markets.

Click here to view further discussion by Latham & Watkins partners on these and other Middle East M&A considerations.

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Rise in Middle East IWPs as Demand for Water Increases

Posted in Project Development and Finance

IWPsThe majority of the world’s desalination plants are located in the Middle East and we are likely to see a further increase given the region’s increasing water consumption and general water scarcity. GCC demand for desalinate water has increased at a rate of 9-11 percent in recent years according to Frost & Sullivan. By 2020, it is expected that the Middle East will add an additional 39 million cubic metres per day of desalination capacity since 2010, which indicates an approximate investment of US$50 billion.

Desalination plants in the Middle East have to date been a relatively small bolt-on to a much larger scale power project forming what are commonly known as independent water and power projects (IWPPs) i.e., an integrated water and power plant developed by an independent producer,  which is typically a global industry player.

However, given the increasing demand for water, it seems regional governments are increasingly adopting an independent water project (IWP) model to expedite supply and, given the introduction of solar and nuclear power projects in the region, IWPs are likely to become more prominent going forward.

Regional IWP Projects

One of the region’s earliest and Oman’s first IWP was the 80,000 m3/d Sur IWP commissioned in 2009. Five years into the 20 year operation period and the owners are reportedly planning to expand the plant’s capacity by a further 48,000 m3/d (12.7 million imperial gallons per day (MIGD)) to meet projected demand for water in the Sharqiyah region of Oman. Oman has since launched the Al Ghubrah IWP –a 191,000 m3/d (42 MIGD) 20 year desalination project expected to be commissioned by the end of 2014– and the Qurayyat IWP – a 200,000 m3/d day (44 MIGD) 15 year desalination project which is targeting commissioning by H1 2016.

UTICO, a UAE based private power and water utility company, has this year launched the Al Hamra IWP, a 22 MIGD 20 year desalination project which is targeting commissioning by Q1 2016.

Bidding, Building and Licensing

The region’s IWPs are largely being awarded, following a competitive bidding process, as long term concessions on a build-own-operate (BOO), build-own-operate-transfer (BOOT) or design-build-operate (DBO) basis to global industry players such as Abengoa, Acciona, Cadagua, Hitachi, Malakoff, Sembcorp, Sumitomo Corporation, Tedagua and Veolia. Each IWP is required by law to be licensed by the national regulator to carry out water desalination.

To a lesser extent some IWPs are being awarded as engineering, procurement and construction (EPC) contracts such as that awarded by the Iraq Ministry of Municipalities and Public Works to Hitachi and Veolia in 2014 for the construction of a 199,000 m3/d desalination plant in Basrah which will be Iraq’s highest capacity single water purification plant. In addition Marafiq, a Saudi based private power and water utility company, awarded Acciona in 2012 the construction of a 100,000 m3 per day (22 MIGD) desalination plant in Al Jubail expected to come into operation by the end of 2014.

Desert Design

The Middle East has historically utilised thermal desalination technology such as multiple-effect distillation (MED) and multi-stage flash evaporation (MSF) although more recently has increasingly utilized membrane technologies such as reverse osmosis (RO), which often require their own supply and maintenance arrangements.

Environmental conditions in the Middle East such as red tide, high sea water temperatures and salinity, mean the pre-treatment facilities need to be designed or adapted to handle those conditions and/or the project documents need to address the occurrence of those risks as, for example, force majeure events with corresponding relief for the developer.

Whether awarded as a long term concession or EPC, there are increasing opportunities for global industry players in Middle East IWPs.

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3 Top Legal Issues to Tackle on Solar Projects

Posted in Capital Markets, Project Development and Finance, Renewables

The Middle East and North Africa region is on the cusp of a new energy revolution. US$50 billion has been set aside for investment in solar power projects by 2020, as MENA governments seek to maximise the long term value of their hydrocarbon resources by utilising solar energy to meet growing domestic consumption. Whilst these ambitious targets present a significant opportunity for potential sponsors of solar power projects in the region, there are a number of key considerations which sponsors may wish to bear in mind in establishing a framework for their investments.

3 Legal Considerations for Solar Development

  1. Ownership and Structure: Middle East solar power projects typically adopt the Independent Power Project (IPP) model, in which a project company is formed for the sole purpose of managing the development, financing, construction, operation and maintenance of the project and holds all of the project’s associated assets. The project sponsors hold their interests through one or more immediate holding companies which protect the sponsors from liability to the project company’s contractual counterparties. In turn, the project company will be subject to a multifaceted contractual framework entered into with its senior lenders and project counterparties.
  2. Risk Allocation: Sponsors should seek to insulate the project company from as many risks as possible, principally by passing those risks through to the project company’s various subcontractors. To achieve this, the project company will enter into a number of project documents through which risks of, for example, construction/completion, operations, feedstock supply and market/offtake, will be passed to contractual counterparties such as EPC contractors or O&M services providers. Such risk allocation determines the risk profile presented for financing.
  3. Financing: Once the risk profile for the project has been finalised, sponsors will seek to structure the financing arrangements in such a way so as to achieve the most competitive levelised cost of electricity (LCOE) and maximize their own equity rate of return. Sources of financing in the MENA region include:
  • Syndicated loan markets: Traditionally, commercial banks have been the preferred source of financing for solar projects as they are willing to lend to project companies during the construction phase of the project and are prepared to assume some of the risk of that construction.
  • Capital markets: Typically, bond investors have been unwilling to take on construction risk and, as a result, have been primarily used to refinance loan facilities after a project has achieved operational status and developed a substantial financial track record. At this stage, capital markets can be an extremely attractive option offering more competitive pricing than loan facilities and longer tenors.
  • Public sector lenders: Export credit agencies, development banks and similar institutions may offer more competitive pricing and longer tenors than commercial banks in certain circumstances.  In addition, many such institutions offer other products such as political or commercial risk insurance or guarantees.

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As Bitcoin Gains Momentum, Focus on Regulation Increases

Posted in Banking and Finance, Capital Markets, Regulatory, Technology, United Arab Emirates

The virtual currency market has emerged in the United Arab Emirates with Dubai’s first Bitcoin ATM introduced in April 2014. Middle East entrepreneurs have begun launching Bitcoin payment products and SMEs are beginning to realise the potential of such technology, with The Pizza Guys becoming the first restaurant in the UAE to accept Bitcoin payments.

Virtual currencies, such as Bitcoin, combine financial and technological instruments and incorporate characteristics of money, accounting, networks and remittances into one concept. As this innovative concept gains momentum, there is a heightened focus on the regulatory framework to reduce the operational and systemic risks associated with the virtual currency industry, and to protect consumers from financial harm is paramount to ensure the survival of a multibillion-dollar system with more than one million users.

Regulating Virtual Currencies

The New York State Department of Financial Services (NYSDFS) is pioneering regulation in the cryptocurrencies industry.  NYSDFS released its proposed regulations governing the use of virtual currencies in New York. Drawing heavily from New York’s banking industry regulations; the strict regulatory regime is set to drastically change the business practices of those currently operating under the virtual currency model.  NYSDFS has defined “virtual currency” as digital units that are either used as: a medium of exchange or a form of digitally stored value; or incorporated into payment system technology.

Most recently, the U.S. Commodity Futures Trading Commission (CFTC) acknowledged the increasing number of merchants accepting Bitcoin as payment for goods and services and that these merchants face considerable risk due to price fluctuations in the value of virtual currencies. October 2014 saw TeraExchange, a swap execution facility (SEF) regulated by the CFTC, offer for trading the first Bitcoin swap to be listed on a CFTC-regulated platform. CFTC noted that TeraExchange’s development of a proprietary Bitcoin price index was central to the CFTC’s review and approval, particularly with respect to the contract’s ability to comply with SEF Core Principle Three, which prohibits SEFs from listing contracts that a readily susceptible to manipulation.

Innovation vs. Regulation

As the virtual currency industry continues apace despite some challenges, regulators and agencies in the US and other markets strive to find the right balance between fostering innovation and implementing regulations. Ultimately, the development and global expansion of virtual currency markets hinges on an effective regulatory regime that can protect consumers from fraud and cybercrime.

As Bitcoin and other virtual currencies continue to grow, and as US regulators pave the way for drafting a virtual currency regulatory framework, it remains to be seen how the United Arab Emirates will develop its own policies that govern cryptocurrencies.

Click here to read more about NYSDFS’ proposed regulations for virtual currencies.

Click here to read more about the first Bitcoin swap listed on a CFTC-regulated platform.

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Is Green Sukuk a Viable Option for Clean Energy Initiatives in the GCC?

Posted in Capital Markets, Islamic Finance, Qatar, Renewables, Saudi Arabia, United Arab Emirates

A number of GCC governments, including those in the UAE and Saudi Arabia, have set ambitious clean energy and energy efficiency targets. As the fastest growing region in the world, the GCC’s population is expected to grow more than 53 million by 2020. Substantial amounts of investments will be required to finance the clean energy and energy efficient projects necessary to meet the needs of the future population.

Capital markets allow investors a low-cost alternative

Green bonds, which tie the proceeds of the bond to environmentally friendly investments, have been used to finance green projects since 2008, when the World Bank pioneered the first-ever green bond. Since then, the World Bank has raised US$6.4 billion in green bonds through 67 transactions in 17 currencies.

Although historically international agencies have issued green bonds, the private sector has begun to use green bonds to finance their green activities.

Investors typically are attracted by the ability to easily integrate environmental initiatives into their investment portfolio, as well as the ability, in some cases, to offset the risks of their portfolio being exposed to climate change. Therefore not only public-sector investment funds, but increasingly asset managers and financial institutions are also buying these bonds.

Islamic finance liquidity

The global Islamic finance industry has seen remarkable growth in the last few years. Sukuk structures are an attractive alternative to conventional bonds due to the liquidity available in the market and it can be tailored to finance green initiatives. Green sukuk could mobilise essential finance needed to fund the rising number of clean energy initiatives throughout the GCC since the majority of clean energy projects will rely on large, long term infrastructure spending. The recent and successful 30-year international sukuk issuance by Saudi Electricity Company has already demonstrated the investor appetite for long term Shari’ah-compliant paper. Sukuk also could potentially fund shorter term energy efficiency projects, for which low cost funding has traditionally been harder to come by.

Who will be first?

The Dubai Supreme Council of Energy announced its partnership with the World Bank to develop a green investment strategy incorporating sukuk. If this strategy succeeds, governments in the GCC could play a key role in developing a green sukuk market. Such a market could play a key role in financing the region’s ambitious clean energy and infrastructure projects.

For more information about green sukuk, please click here for a special report published in Islamic Finance news and here for a Q&A on financing the Gulf’s region’s renewable energy infrastructure.

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Why International Investors are Watching the Tadawul

Posted in Capital Markets, Saudi Arabia


The MSCI upgrade of Qatar and the United Arab Emirates to “emerging market’ status marked the beginning of increasingly liberalised GCC stock exchanges.

Saudi Arabia’s stock exchange, the Tadawul, is by far the largest securities exchange in the GCC by market capitalisation. It is also the most liquid in terms of daily trading volumes and the most diversified in terms of issuers.

Most recently, The National Commercial Bank (NCB), Saudi Arabia’s largest bank, issued 25 percent of its shares at an offer price of SAR45 per NCB share. This US$6 billion initial public offering (IPO) is the largest equity offering ever in Saudi Arabia and in the Arab world, and is also the second largest IPO globally so far this year.

Tadawul Set for Foreign Investment?

This landmark offering has not only encouraged increased liquidity in the Middle East’s equity capital markets, but has also attracted the attention of international investors. Direct investment in the shares of Tadawul-listed companies has historically been limited to Saudi and other GCC investors. Yet in August 2014, the Saudi Arabian Capital Market Authority (CMA) published its draft rules for qualified foreign financial institutions, a proposal which will permit non-Saudi’s to participate directly in the Kingdom’s stock exchange. Although subscription to the NCB IPO is limited to Saudi nationals, the awaited opening of the GCC’s largest stock exchange to foreign investment has heightened interest in the Tadawul among global investors.

It is expected that the final rules will not be announced before 2015. Once in force, eligible foreign investors will benefit from the opportunity to invest directly in Tadawul-listed companies. Yet in order to access the Kingdom’s stock exchange, applicants will be subject to a registration regime where aspiring Qualified Financial Institutions (QFI) must satisfy certain eligibility criteria, including license standards, asset value  and experience in securities related activities.

The draft rules propose that QFIs must have assets under management of no less than US$5 billion. This threshold will therefore limit all but the largest foreign institutions from investing directly in the Tadawul. Although the opening of the Tadawul is limited, it represents a significant change in Saudi Arabia’s capital markets policy.

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