27 ASIAN LEGAL BUSINESS – MAY 2024 WWW.LEGALBUSINESSONLINE.COM unprecedented amount of interest from foreign investors looking to invest in the region,” he adds. This strong investor confidence is attributable to three significant changes over the last few years: the governmentdriven increase in access to the region’s businesses, the maturity of local investors and companies, and structural regulatory reforms to increase transparency and accountability in capital markets. Almost two decades of reforms, including investor protection regulations, transparency requirements, risk mitigation policies and the creation of market intermediaries, has facilitated the inclusion of exchanges in the region on global financial indexes, are driving forward a larger cohort of companies, across sectors, to list on the region’s stock exchanges. In recent times, it has been Saudi Arabia’s structural market reforms that have led to increased IPO activity in the country. At the macro level, the country has put out new company laws, bankruptcy regime and contract laws to improve business certainty. The most significant reform has been the lifting of foreign ownership limits from 20 percent to a full 100 percent, under Saudi Arabia’s Vision 2030. This shift has ensured that Saudi Arabia’s companies are now open to the world’s investors. The modernisation of the country’s securities dispute resolution mechanism, led by the Committee for Resolution of Securities Disputes (CRSD), has also chipped away at concerns related to investment risks. “As the market has grown, we are seeing better and quicker decisionmaking from the CRSD, which is giving more comfort to market participants,” Al-Sudairi explains. Regulatory authorities have also improved their engagement with listed companies and investors, particularly on issues of corporate governance, oversight and accountability, which gives more confidence to investors looking to pour into the country’s capital markets. Investors are also attracted to strong returns and aftermarket performance of publicly listed companies in the last few years. A PwC report found that Middle East IPOs have had a much better IPO aftermarket performance compared to the rest of the globe. In 2023, two of the top ten IPOs, Ades Holding and Pure Health Holding, increased by over 70 percent since their listing. The Middle East is also experiencing the emergence of a start-up market, with a larger number of unicorns and smaller companies, particularly in the technology sector, that are now maturing and looking to go public. This maturing market demands specific regulation to bring in foreign investors and public capital, and the governments in the region are legislating tailor-made solutions to address these concerns. “There is a strong initiative by regulators in Saudi Arabia to support emerging companies and pave the way for their public listing,” explains Al-Sudairi. This is changing the market dynamic as the focus is not only on state-owned enterprises looking to go public. “You’ve also got these high growth, high potential companies that are coming into the market that have a different investor base that have a different level of excitement,” he adds. STABILITY AMID INSTABILITY This investor confidence remains strong, particularly in Saudi Arabia and the UAE, despite the region’s geopolitical instability and growing tensions between Israel and Iran. A Fitch Ratings report from January finds that the Israel-Hamas conflict is dampening market outlook, presenting risks to tourism, trade, investment and public finances. But the negative spillover is broadly limited to neighbouring countries such as Egypt, Lebanon and Jordan, the report finds. The more long-term threat to the region’s bourses could be the volatility of oil prices amid the conflict, given the strong dependence of Gulf Cooperation Council (GCC) nations on the oil economy. The active diversification from oil is also a significant comfort factor, bringing stability to investors and local businesses alike. In 2023, Saudi Arabia’s IPOs came from a variety of sectors, led by energy (36 percent), transportation (29 percent) and healthcare (10 percent), an EY report found. But Al-Sudairi says that he is increasingly seeing growth from companies from other emerging sectors, particularly financial technology, who are expressing interest in going public and attracting foreign investment. Investment banks in the region’s IPO scene are also more actively looking at non-oil investments to lead growth over the coming decade and forecast an increasing participation from a non-oil private sector to hold a substantial chunk of the country’s public markets in that timeframe. “While energy, construction and infrastructure remain hugely important components of the public markets and will remain so, at the same time, there has been strong growth in the consumer market, residential development and digital sectors,” Al-Sudairi says. MIDDLE EAST “While energy, construction and infrastructure remain hugely important components of the public markets and will remain so, at the same time, there has been strong growth in the consumer market, residential development and digital sectors.” — Salman Al-Sudairi, Latham & Watkins
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