2015 International Roadshow - QFI Framework (051115)

Prepared by: Supervised by:

Prepared For:

E M P O W E R I N G N E W P O S S I B I L I T I E S

www.tadawul.com.sa

2015 Saudi Stock Exchange

International Road Show

The QFI

Framework -

Internationalising

the Saudi Stock

Market

28th Oct – 5th Nov, 2015

CEO’s Office

Presentation Agenda

Topics

2

Q&A

Capital Market Profile1

Relative Positioning2

IPO Landscape3

The QFI Framework4

Capital Market Profile

4

Extensively

Regulated

Retail

MarketProfessional

Market


The Saudi Blueprint

Sukuk & Bond Market

-

USD 7,634 m

ETFs

Market

-

USD 12.47 m

Privately Placed Debt Instruments

Privately Placed Equity

Privately Placed

Advanced Securities

Saudi Capital Market Blueprint …

Stock Market

-

USD 444,545 m

Mutual

Funds Market

-

USD 30,272 m

Source: Internal Analysis of Saudi Stock Exchange and CMA Data (30th September 2015)

Total Size

USD 483,464 m

Slower primary market

Very active stock market

Low activity in other 3 segments

Characteristics: Active primary market

Lower activity in the

secondary market

Characteristics:

The retail market is

governed by a number

of rules and

regulations:

Listing Rules

Corporate

Governance

Regulations

Market Conduct

Rules

Investment Fund

Regulations

Real Estate

Investment Fund

Regulations

M&A Regulations

5

The stock market is by

far the most dominant

constituent of the retail

market

Stock Market92.16%

Sukuk & Bond Market1.58%

Mutual Funds Market6.26%

ETFs Market0.003%

Other7.84%


Segmental Snapshot

THE DOMINANCE OF THE STOCK MARKET IN SAUDI ARABIA IS VERY SIGNIFICANT WHEN COMPARED TO THE

GLOBAL AGGREGATE BENCHMARK WHICH SUGGESTS A 60/40 SPLIT BETWEEN DEBT AND EQUITY

CAPITAL STOCK

The total size of the retail market is USD 483.5 bn, comprised of the following segments …

Retail Market SegmentsComposition by Value (30/09/2015)

Retail

Market

Total Size

USD 483,464 m

Source: Internal Analysis of Saudi Stock Exchange and CMA Data (30th September 2015)

USD 444,545 m

USD 30,272 m

USD 7,634 m

USD 12.47 m

6

Together the Banking,

Petrochemical and

Telecom sectors

comprise more than

59% of stock market

capitalization


Stock Market Sectors – Market Cap and Value Traded

THE MARKET CAPITALIZATION OF THE SAUDI BANKING, PETROCHEMICALS, AND TELECOM SECTORS

REPRESENT 56% OF THE MARKET CAP OF THE UAE, QATARI, BAHRAINI, KUWAITI AND OMANI STOCK

MARKETS PUT TOGETHER

Banks & Financials

28%

Insurance3%

Petrochemicals22%

Telecom & IT9%

Agriculture & Food7%

Real Estate Development

6%

Others22%

Industrial Investment

3%Banks &

Financials17%

Insurance14%

Petrochemicals16%

Telecom & IT6%

Agriculture & Food5%

Real Estate Development

11%

Others22%

Industrial Investment

9%

Sector Breakdown – By LTM Value Traded

30th September, 2015

Sector Breakdown – By Market Capitalization

30th September, 2015

Market Capitalization USD 445 bn LTM Value Traded USD 478 bn

Though the Insurance

sector comprises only

3% of stock market

capitalization, it

represents 14% of LTM

value traded, the third

most liquid sector after

the Banking, and

Petrochemical sectors

Source: Internal Analysis (30th September 2015)

7

NRFI - Strategic,

3.65%

GCC Investors,

2.66%

Retail, 4.41%

HNWIs, 8.47%

IPIs, 19.42%

DPs, 0.30%

RFIs, 0.35%

NRFIs - Swap, 1.08%

NRFIs - Strategic,

3.47%

GCC Investors, 2.54%

QFIs, 0.03%Mutual Funds, 2.57%

Corporates,

21.55%

Government Related

Entities are the most

significant shareholders

in the stock market with

a 35.83% share of total

market capitalization


Stock Market Ownership

ALTHOUGH SAUDI “INDIVIDUALS” MAKE UP 32.48% OF STOCK MARKET OWNERSHIP, THEY ACCOUNT FOR

89.6% OF LTM TRADING ACTIVITY…. SAUDI “RETAIL” INVESTORS MAKE UP 4.41% OF STOCK

MARKET OWNERSHIP BUT ACCOUNTED FOR 47.3% OF TRADING ACTIVITY IN SEPTEMBER, 2015


Stock Market Ownershipby Investor Class

(30 September 2015)

Saudi Individuals,

32.48%GREs, 35.83%

Saudi Institutions,

24.12%Non-Saudi,

7.74%

Stock market ownership is dominated by institutional investors, contrary to common

perception …

Note:

Total institutional

investment in the

stock market is

upward of 64.5%

when considering

the investment

holdings of GREs,

Saudi Institutions,

QFIs and NRFIs.

Abbreviations:

QFIs Qualified Foreign Investors

NRFIs Non-Resident Foreign Investors

RFIs Resident Foreign Investors

IPIs Individual Professional Investors

HNWIs High Net Worth Individuals

DPs Discretionary Portfolios

Although Saudi

Individuals account for

34.28% of stock market

ownership, it is

important to note

investors considered

classified under retail

only comprise 4.41% of

market ownership

8

Non Resident Foreign

Investors through the

Swap Framework have

demonstrated positive

investment behavior

since the introduction

of the Framework in

August 2008,

accumulating

USD2.2bn worth of net

long positions to date

(at historic transaction

prices)


Accumulated Stock Market Positions (Non-Saudis)

QUALIFIED FOREIGN INVESTORS ACCOUNT FOR 0.03% OF OVERALL OWNERSHIP IN THE SAUDI STOCK

MARKET (AT CURRENT VALUE – SEPTEMBER 2015)

A micro view of accumulated Non-Saudi positions in the stock market since 2008 …

Source: Internal Analysis of Published Data (30th September 2015) – Data coverage begins in Jan 2008

Note: QFIs have

accumulated USD9.2 m

of holdings (at historic

cost) since June 2015,

and have transferred

USD114.5 m of Swap

exposures to underlying

holdings over the same

period

Accumulated Positions by Non-Saudis

At Historic Transaction Cost

(Jan 2008 – Sep 2015)

millions

USD (1,200)

USD (800)

USD (400)

USD -

USD 400

USD 800

USD 1,200

USD 1,600

USD 2,000

USD 2,400

USD 2,800

USD 3,200

USD (1,200)

USD (800)

USD (400)

USD -

USD 400

USD 800

USD 1,200

USD 1,600

USD 2,000

USD 2,400

USD 2,800

USD 3,200

Jan

- 0

8

Ap

r -

08

Jul -

08

Oct

- 0

8

Jan

- 0

9

Ap

r -

09

Jul -

09

Oct

- 0

9

Jan

- 1

0

Apr

- 10

Jul -

10

Oct -

10

Jan

- 1

1

Ap

r -

11

Jul -

11

Oct

- 1

1

Jan

- 1

2

Ap

r -

12

Jul -

12

Oct

- 1

2

Jan

- 1

3

Ap

r -

13

Jul -

13

Oct

- 1

3

Jan

- 1

4

Ap

r -

14

Jul -

14

Oct

- 1

4

Jan

- 1

5

Ap

r -

15

Jul -

15

GCC Investors Resident Foreign Investors NRFI - SWAP NRFI - QFI

Introduction

of QFI

Framework

Introduction

of Swap

Framework

Relative Positioning

10

THE SAUDI STOCK MARKET IS THE 21ST LARGEST STOCK MARKET AMONGST 58 WFE MEMBERS, AND IS THE MOST DOMINANT MARKET IN

THE GCC COMPRISING 51% OF TOTAL GCC MARKET CAPITALIZATION AND 79% OF VALUE TRADED

Relative Positioning

Global and Regional Standing

Source: World Federation of Exchanges – Monthly Statistical Reports (30th September 2015)

… with the following dimensionsFrom a global perspective …

… from a GCC perspective …

Feature 30th September 2015

Constituents 171

Sectors 15

Broker Members 31

Number of Investors 4.8m

Market Capitalization (Ranked 21st WFE) USD 445 bn

LTM Value Traded (Ranked 20th WFE) USD 478 bn

LTM Trading Velocity (Ranked 10th WFE) 107.4%

Relative Size (MCAP/GDP) 68.6%

WFE Exchanges By Stock Market Capitalization


LTMTraded Value

Market Cap

Other GCC ExchangesSaudi Stock Exchange

31 December

2014

30 September

2015

YTD

ChangeRanking Exchange

USD Billion USD Billion %

1 NYSE 19,351 18,933 -2.2%

2 Nasdaq - US 6,979 6,746 -3.3%

3 Japan Exchange Group 4,378 4,405 +0.6%

4 Shanghai Stock Exchange 3,933 3,952 +0.5%

5 Euronext 3,319 3,184 -4.1%

6 Hong Kong Exchanges & Clearing 3,233 2,992 -7.4%

7 Shenzhen Stock Exchange 2,072 2,651 +27.9%

8 TMX Group 2,094 1,653 -21.0%

9 Deutsche Boerse 1,739 1,585 -8.8%

10 SIX Swiss Exchange 1,495 1,468 -1.8%

..

20 BM&FBOVESPA 844 496 -41.2%

21 Saudi Stock Exchange 483 445 -8.0%

22 Moscow Exchange 386 425 +10.3%

23 Bolsa Mexicana de Valores 480 423 -12.0%

24 Stock Exchange of Thailand 430 358 -16.7%

..

32 Borsa Istanbul 220 149 -32.1%

33 Irish Stock Exchange 143 146 +1.8%

34 Abu Dhabi Securities Exchange 114 116 +1.6%

35 Dubai Financial Market 88 94 +7.0%

..

58 Bermuda Stock Exchange 2 1 -24.2%

79%

51%

21%

49%

11

Saudi Arabia has the

largest stock market

(USD 445 bn) in the

Middle East and North

Africa

Relative Stock Market Size

MENA and Emerging Markets

THE SAUDI STOCK MARKET IS THE LARGEST AND MOST LIQUID STOCK MARKET IN THE MIDDLE EAST AND

NORTH AFRICA, AND IS THE 7TH LARGEST COMPARED TO ITS EMERGING MARKET PEERS

Relative Size from a MENA and Emerging Markets perspective …

Market CapGDP

69% 58% 84% 65% 20% 46% 60% 56% 64% 64% 17%

Selected

MENA

Markets

(Market Cap -

USD Billions)

12 3

445

210 166

88 58 47 38 31 24 20 8

-

100

200

300

400

500

SaudiArabia

UAE Qatar Kuwait Egypt Morocco Oman Lebanon Jordan Bahrain TunisU

SD B

illio

n

The Saudi stock market

is also the 7th largest

compared to its

Emerging Market peers

Market CapGDP

59% 125% 83% 240% 137% 26% 69% 36% 34% 93% 106%

Selected

Emerging

Markets

(Market Cap -

USD Billions)

Source: WFE (All Figures are Rounded, 30th September, 2015), IMF GDP Data F2015

6,603

2,894

1,189 776 723 496 445 425 423 358 347

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000

China India SouthKorea

SouthAfrica

Taiwan Brazil SaudiArabia

Russia Mexico Thailand Malaysia

USD

Bill

ion

7th Largest Amongst

Emerging Market Peers

1 23

12

The Saudi stock market

is also the 6th most

liquid stock market

when compared to its

Emerging Market peers

in terms of LTM value

traded and the 5th most

liquid in term of market

velocity

Relative Market Liquidity and Valuation Multiples

MENA and Emerging Markets

THE SAUDI STOCK MARKET RANKS WELL AGAINST ITS EMERGING MARKET PEERS IN TERMS OF SIZE,

LIQUIDITY AND MARKET VALUATION

Liquidity, Valuation, and Performance from an Emerging Markets perspective …

MarketVelocity

571% 156% 28% 89% 122% 107% 262% 47% 88% 37% 32%Selected

Emerging

Markets

(LTM Value

Traded - USD

Billions)

1 23

1,853

808 640 603 478 391 368 316 159 136

-

1,000

2,000

3,000

4,000

China SouthKorea

India Taiwan Brazil SaudiArabia

Turkey SouthAfrica

Thailand Russia Mexico

USD

Bill

ion 6th Most Liquid Amongst

Emerging Market Peers37,705

From a valuation

perspective, the Saudi

stock market’s Trailing

P/E ratio is slightly

higher than the MSCI

EM Trailing P/E

YTD Index Performance

+5.2% +2.5% -3.8% -12.1% -9.9% -11.2% -13.4% +0.6% -9.9% +5.1% -1.2%

1 23

MSCI EM Trailing P/E = 12.36xSource: Internal Analysis (30th September, 2015) – Note: Market Cap weighted average metrics used for jurisdictions with multiple exchanges

24.9x

16.1x 20.7x

12.4x

26.7x

14.1x 11.2x

24.5x

17.3x

6.6x

29.2x

- 5.0x

10.0x 15.0x 20.0x 25.0x 30.0x 35.0x

China SouthKorea

India Taiwan Brazil SaudiArabia

Turkey SouthAfrica

Thailand Russia Mexico

Trai

ling

P/E

Selected

Emerging

Markets

(Trailing

Price/Earnings)

IPO Landscape

14

Discretionary IPOs[dih-skresh-uh-ner-ee IPOs]

Meaning

IPOs conducted willfully at the discretion of the issuer’s shareholders

Examples

Private / Family Owned Business

Mandatory IPOs[man-duh-tawr-ee, IPOs]

Meaning

IPOs mandated by law, and enforced by the relevantregulators and authorities

Examples

Banking, Insurance, Petrochemicals, Cement andTelecom Sectors

There have been 101

IPOs since the

promulgation of the

Capital Market Law

(“CML”) in 2003

IPO Landscape

Historic Overview

101 IPOs since the promulgation of CML in 2003 - total proceeds of USD 31.8bn ...

BankingUSD 9,200 m

40%

InsuranceUSD 1,204 m

5%

PetchemUSD 5,221 m

23%

CementUSD 1,096

m 5%

MiningUSD 2,467

m 11%

Infrastructure

USD 1,489 m

6%

TelecomUSD 2,307 m

10%

Mandatory IPOs – Composition by Sector (Since CML)IPO Composition by Classification (Since CML)

DiscretionaryUSD 8,833 m

28%

MandatoryUSD 22,984 m

72%

-

2,000

4,000

6,000

8,000

10,000

12,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD2015

-

5

10

15

20

25

30

USD m Discretionary Mandatory Number of IPOs IPOs

19 Mandatory

7 Discretionary

Petrorabigh

Al Inma Bank

Zain

Maaden

NCB

Total IPO proceeds of

USD 31.8bn have been

raised over the period,

nearly 72 percent of

these proceeds are

attributed to 59

Mandatory IPOs

Of these 59 IPOs, the

three banking sector

IPOs (Al Bilad, Al Inma,

and NCB) raised USD

9.2bn, representing 40

percent of mandatory

offerings, and 29

percent of all IPOs

conducted since 2003

Source: Internal Analysis (30st September 2015)

15

Private

Equity Exits

Qualified Foreign

Investors

Local

Demand

Tiered

Market

Structure

Finance

Companies

Control Law

(FCCL)

Policy

Acceleration

IPO

Stimulants

IPO Landscape

Market and Policy Dynamics

Various factors are

anticipated to drive IPO

activity as we go

forward

AS WELL AS IPOS, GCC CROSS-LISTINGS ARE ANTICIPATED TO INCREASE THE BREADTH OF THE STOCK

MARKET

The recent introduction of the Council of Economic

Development and Affairs may accelerate privatizations of

state-owned-enterprises (probable), or indeed stimulate

secondary offerings of partially owned state-owned listed

holdings

There is a tremendous amount of institutional and retail

demand for IPOs (NCB the world’s second largest IPO in 2014

was oversubscribed by 24 times by retail investors)

Supply Side Stimulants ...

Demand Side Stimulants ...

There are a number of

fully/semi owned SOEs

that could be subject to

privatization over the

coming years

There are a number of

licensed real estate

financing companies

and finance leasing

companies that could

be subject to IPO to

comply with the FCCL

The Finance Companies Control Law explicitly requires

finance companies to undergo a public offering, with

parameters of such IPOs to be determined by a special

Ministerial Committee

Maturing private equity investments in family owned business

may result in the acceleration of IPO exits, particularly when

market valuations begin to appreciate

Foreign investors are also looking to tap into a wider selection

of investment opportunities in the secondary market.

The possible introduction of a Venture market could stimulate

the introduction of a high number of risk capital opportunities

and expand the breadth of the market

Note: A number of

companies in the IPO

pipeline are waiting for

market valuations to

improve

The QFI Framework

17

International investors

have an opportunity to

take part in a new and

emerging set of

investment

opportunities

The QFI Framework

Benefits to Foreign Investors

THE KINGDOM POSES A COMPELLING INVESTMENT DESTINATION FOR SOPHISTICATED LONG

TERM VALUE INVESTORS… THIS IS A CONTINUING STEP IN A LONGER JOURNEY OF

STOCK MARKET LIBERALIZATION

Growth

Potential

Take part in the

economic growth of the

Kingdom:

New

Opportunity Set

Access to one of the

largest and relatively

untapped emerging

market economies:

Issuer Diversity

Market Liquidity

Market Size19th Largest World

Economy

Center of MENA

Business Activity

Young & Growing

Population

Economic

Diversification Story

Market

Evolution

Support evolution of

market to become more

conducive to foreign

investor needs

Framework

Evolution

Support evolution of

Framework to become

more conducive to

foreign investor needs

Participation

Growth

3

Diversification

1

2

Key Benefits to Foreign Investors ...

Become partners in

shaping the Saudi

capital market to be

conducive and

accommodative to

international investors

And share in the longer

term growth prospects

of the Saudi economy

18

Development

Accelerant

Designed to accelerate

convergence to higher

standards of:

Global

Harmonization

Designed to comply

with our undertakings

to the local and global

communities:

WTO Commitments

G20 Commitments

KSA 10th Dev. PlanCorporate Governance

Investor Relations

Issuer Disclosures

Analyst Research

Shareholder

Activism

Designed to stimulate

enhanced shareholder

activism

Investment

Behavior

Designed to attract

Value driven longer

term investors

The Rules govern a

customized framework

designed to facilitate

direct access into the

stock market for a

specific segment of the

foreign investor

community

The QFI Framework

Market Opening – Key Objectives

INFLOW OF FOREIGN INVESTMENTS IS NOT THE OBJECTIVE OF THE FRAMEWORK

Key Objectives of Market Opening ...

Enhancing Market Sophistication

Fostering Best International

Practices

3

2

Honoring the National Agenda

1

The final draft of the

Qualified Foreign

Investor Rules were

approved on the 4th

May, 2015

19

Settlement Cycle

As a result of the prevailing settlement cycle of T+0

for equities, all transactions by QFIs will need to be

pre-funded

Individual QFI Limit (5%)

Aggregate QFI Limit (20%)

Aggregate Foreign Limit (49%)

Market Level Restriction (10%)

Type of Institution

Qualifying Jurisdiction

Size of Institution

Investment Experience

The QFI Framework

Qualify

Pre-Fund

Invest

Market Opening – Key Framework Features

Ownership Limitations

Qualified Foreign Investors are

subject to various layers of foreign

ownership limits

Registration Conditions

Non-Resident Foreign Institutional

Investors must qualify and continue

to maintain their qualification as

QFIs under the Rules

3 1

2

Note: Ownership restrictions

implicitly confine the ability of

foreign companies from making

strategic investments in Saudi listed

entities.

The QFI Framework was explicitly

designed for institutional portfolio

investments.

20

AP / Issuer

Workshops

The QFI Framework

Facilitating the QFI Framework

Enforcing Foreign Ownership Limits …1

Limits Applicable OnEnforcement

Mechanism

Reporting Foreign Ownership Headroom …

Venue Frequency Timing

Strictly

Restricted

Stocks

Systematically Enforced All Non-Saudis Exchange Website Static Entry

Zero Headroom Post Market

5% Individual

QFI Limit

Systematically Enforced QFIs & Affiliates

QFI Clients & Affiliates Limited to QFIs and QFI

Clients (not affiliates)

Only reported if

applicable parties

reach 5% ownership

limit (Major Shareholders)

Triggered Event Post Market

20%

Aggregate

QFI Limit

Systematically Enforced Aggregate of all QFIs and

QFI Client Holdings Exchange Website Daily Post Market

49%

Aggregate

Foreign Limit

Systematically Enforced All Non-Saudis (Ex GCC)

Includes Swap Holdings Exchange Website Daily Post Market

10% Market

Level Limit

Monitored and Manually

Enforced

Aggregate of all QFIs, QFI

Clients and Swap Holdings

Excluding Strategic Holdings

Exchange Website Daily Post Market

Generating Awareness …3

International

Roadshow

Materials &

Publications

Media

Engagement

2

Other

Investor

Restrictions(Regulator/ Bylaws)

Limits Reported on

Exchange Website

Saudis

Non-Saudis

21

In facilitating the QFI

Framework, the capital

market moves a

number of steps closer

to international best

practices

The QFI Framework

Facilitating the QFI Framework

THE EXCHANGE, THE CMA, AND SAMA ARE WORKING JOINTLY TO ALIGN WITH THE

RELEVANT CPMI IOSCO – PRINCIPLES FOR FINANCIAL MARKET INFRASTRUCTURES

Independent Custody Model …4CMA APPROVED

(4th May 2015)

Closer to best

international

practice

Separates roles of

brokers and

custodians

Enhances investor

protectionEmpowers investors

Bilingual Disclosure and Enhanced XBRL Reporting5CONTINUING

PROGRESS

Further

Development of

XBRL Taxonomy

41% of All

Announcements are

Billingual

IFSAH XBRL

Bilingual Financial

Reporting

Billingual Issuer

Annoucements

Awareness Initiative

October, 2010 June, 2013 YTD September, 2015 Ongoing

It also brings us closer

to achieving

classification into the

major country indices

and allows us to focus

on developing the

Exchange, enhance our

governing processes

and the financial

market infrastructure

around us

Country Index Classification …6WORK IN

PROGRESS

QFI Framework

Activation

MSCI Saudi Arabia

Small and Large Cap

Indices

SEC Filing of iShares

MSCI Saudi Arabia

Capped ETF

MSCI Provisional Saudi

Arabia Investable

Market Index

September, 2014 October, 2014 June, 2015 June, 2015

FTSE Watch List for

Secondary Emerging

Market Status

September, 2015

NOT INCLUDED in MSCI

Market Classification

Review Cycle

June, 2015

22

As at mid-October, nine

multinational asset

managers and

securities firms have

successfully registered

as QFIs

Two investment funds

have also successfully

registered as QFI

Clients

The QFI Framework

AUM of Registered QFIs

SINCE 15TH JUNE, 2015, A NUMBER OF ASSET MANAGERS AND SECURITIES FIRMS WITH

TOTAL AUM IN EXCESS OF USD 5.65 TRILLION HAVE REGISTERED AS QUALIFIED

FOREIGN INVESTORS

Total AUM

USD 5,111 bn

Total AUM

USD 480 bn

Total AUM

USD 55 bnTotal AUM

USD 6 bn

9 Foreign institutional investors have registered as QFIs since the introduction of the

framework, including the largest asset manager in the world ......

TOTAL ASSETS UNDER MANAGEMENT OF REGISTERED QFIS > USD 5.65 Trillion

Thank you

Saudi Stock Exchange

P.O. Box 60612, Riyadh 11555

www.tadawul.com.sa

2015 International Roadshow - QFI Framework (051115)

Documents

Transcript of 2015 International Roadshow - QFI Framework (051115)