Saudi Arabia to allow OTC trade of shares in suspended or delisted firms

Saudi Arabia's securities market regulator said on Wednesday that it would permit off-market trading of shares in companies which had been suspended or delisted from the stock exchange.

The Capital Market Authority has issued rules covering such trade and will immediately start receiving applications from companies to conduct it, the authority said in a statement on the exchange's website.

Partly in order to prepare the stock market for its opening to direct foreign investment early next year, the CMA has been tightening its supervision of the market. The latest rules appear designed to help shareholders realise some value from companies caught in the crackdown.

In July, new rules took effect compelling firms with losses totalling 50 percent of their capital to announce plans to remedy their financial standing, and imposing penalties such as share suspensions on firms with bigger losses.

Early this month, the CMA said it was suspending trade in shares of Sanad Cooperative Insurance and Reinsurance Co  while the company carried out instructions by the central bank to strengthen its business.

Last year, authorities ordered the delisting of Saudi Integrated Telecom Co, a relatively small and new firm which had struggled for months under the weight of its losses.

Turki Fadaak, head of research at al-Bilad Investment, said over-the-counter trading of shares had not previously occurred in Saudi Arabia, and that the CMA's new rules might currently allow this to happen in four or five companies.

"By allowing shares to trade OTC, this will help all shareholders to exit the shares if they wish," he said.

Hisham Tuffaha, a portfolio manager in Riyadh, said the policy was positive for the stock market as it would facilitate investment in loss-making firms and help them secure liquidity needed to get over the losses.

"There are investors who like to buy assets in distress -  they know the business and can make the company successful and profitable again, but previously there were no means to acquire it," said Mazen al-Sudairi, head of sell-side research at Alistithmar Capital.

He said he hoped the CMA's decision would be expanded to allow OTC trading in shares of companies that had never listed on the stock market, which would help to stimulate corporate activity and the economy. The CMA statement did not mention this possibility. 

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