Interview with Mr Mohammed Sulaiman Al-Rumaih, CEO, Tadawul – Saudi Stock Exchange

08 Jul Interview with Mr Mohammed Sulaiman Al-Rumaih, CEO, Tadawul – Saudi Stock Exchange

A STAT report shows that Saudi Arabia saw a year-on-year GDP growth of 3.9% in Q1 2023, which is very impressive given that Saudi Arabia was the fastest growing large economy in 2022. What have been the main drivers in Saudi Arabia’s strong economic performance and what role do you see the private sector playing in this growth?

Al-RUMAIH: The results we’re seeing now are evidence of the great planning and execution that we’ve undertaken in the past few years since the launch of Vision 2030. When you compare Saudi Arabia then and now, it’s completely different. We have made significant progress in terms of the economy, diversity, business resilience and numerous other activities that are visible today. These were virtually non-existent in 2016. For instance, sectors like entertainment and tourism previously contributed almost 0% to our GDP, are now thriving, attracting a considerable number of visitors. Various business activities are also experiencing growth. This progress didn’t happen overnight, but rather through consistent economic performance and exceptional execution of our plans and visions. We aren’t stagnant and expect an even stronger economy. It’s evident that Saudi Arabia is garnering attention and high expectations for its future economic performance in the coming years.

The Financial Services Department Program is one of the Vision Realization Programs in Vision 2030 and through Tadawul’s rapid market cap growth in recent years and your own IPO in 2021, raised over $1 billion. Could you share with us why the Saudi government sees the capital markets play such an important role in the objectives of Vision 2030?

Al-RUMAIH: Capital markets play a vital role in any economy and Saudi Arabia, being the largest in the Middle East, holds tremendous potential due to its strategic location and robust economic environment. This potential was recognized as part of Vision 2030 and was subsequently translated into the Financial Sector Development Program, aimed at unleashing the potential of the Saudi market. We have witnessed tangible results from these efforts. For example, Last year, Tadawul emerged as the largest market in terms of number of IPOs in the Middle East and Europe with over 50 listings. This momentum has continued into this year with 15 IPOs completed so far and we anticipate an additional five. We currently have more than 60 applications pending with the CME, indicating a healthy pipeline of opportunities. This is excellent because it demonstrates the vibrancy of our economy and the significant momentum of interest, not only from companies seeking to be listed, but also from investors, both locally and internationally, who wish to be a part of Saudi Arabia’s overall story. If you are considering investing, there are various avenues available. One of the primary ways to participate is through the Saudi capital market, which is evident from the impressive numbers and state-of-the-art infrastructure we have in place. Over the past few years, we have diligently enhanced and developed regulations to facilitate this participation. Through the Saudi capital market, we can contribute to and align with Vision 2030. This commitment is further exemplified by our influence in the market. Since 2019, international investors have been net buyers in our market, and today their holdings exceed $100 billion US dollars with continuous growth. While there are limitations on investment for everyone, we’re gradually opening up the market. We are simplifying investor access and facilitating increased activity across various sectors of the capital market, including asset managers, brokerages, institutions and custodians. We are witnessing a surge in activity and growing interest from around the world. The capital market serves as a vehicle to optimize liquidity within the economy. For example, there is a program that started a few years ago, aimed at encouraging private companies to list on the market. In the past, we witnessed only four or five IPOs annually.

However, with the implementation of this program, which falls under the Financial Security Development Program and is led by the Capital Market Authority, we thoroughly examined the obstacles faced by companies and worked towards streamlining the process. Our goal wasn’t to make it easy, but rather to make it appropriate and appealing for companies to list while simultaneously meeting the expectations of investors in a capital market. We made tremendous changes. For example, we launched the parallel market, specifically designed for SMEs. This market aligns with the objectives of Vision 2030, which aim to increase the contribution of SMEs to the economy up to 35%. We strive to provide all necessary support to enable SMEs to thrive. One crucial support is granting them access to the capital market. Last year alone, we facilitated over 30 IPOs for SMEs. Currently, a significant portion of our IPOs are focused on SMEs and the parallel market. Moving forward, we’ll continue with our efforts to enhance the market and implement further improvements. We have observed growing interest from both international and regional companies in considering listing on this market. The appeal lies in the market’s strong liquidity, robust regulations and its alignment with our aspirations to establish an international capital market.

At the end of 2022, Tadawul ranked as the 12th largest stock exchange globally by market capitalization with the market cap sitting at over $2.7 trillion. In terms of market liquidity, how are you promoting greater participation and trade within the market and bringing in more capital into the course? What are some of the major highlights of the last year of top-listed performance and IPOs on the stock exchange?

Al-RUMAIH: We are currently the ninth largest stock exchange. One of the major highlights has been the successful IPOs and increased activity, which have attracted international investors to the vibrant Saudi market. It’s crucial for any stock market to have a variety of stories unfolding every day, including different types of IPOs. We have streamlined the process to become part of the Saudi market, particularly in terms of investor access. We have worked closely with local and international banks to understand their needs and ensure they can seamlessly access the market. This has been facilitated through ongoing communication and collaboration with asset managers. Notably, we’ve seen increasing interest from various players, including those coming from London, as evidenced by the constant influx of new names at our shows. We are committed to meeting the demands of the Saudi capital market by expanding and diversifying the products available. As part of our ongoing enhancements, we introduced single stock futures last year, which is part of our broader plan for a derivatives market. This market is continuously evolving, and we’re diligently building its infrastructure to ensure that all components complement one another effectively. Currently, we’re focusing on expanding into the derivatives market. These developments play a big role in optimizing liquidity, providing investors ways to invest and hedge opportunities and enabling companies to secure cost-effective and efficient capital sources of capital to support their growth. In Saudi Arabia, we’ve established strong connectivity, enabling us to provide companies with diverse financing options. It’s very important not to rely on one source of funding, such as commercial banks or government programs, although we do have several supportive initiatives in place. Instead, we aim to empower the private sector with cutting edge technology and regulations, exemplified by the robust capital market, which can leverage to their advantage. This benefits both companies and investors. We have observed exceptional IPO performance and post-IPO performance. Additionally, our market index has shown impressive performance in comparison to many other markets. This can be attributed to the remarkable growth we’re witnessing in our economy. Our economy is outperforming other G20 economies and our stock market index serves as an accelerator, often forecasting the future performance of the economy.

The Stock Exchange is home to the world’s most profitable company, Aramco, as well as a host of other highly lucrative companies with opportunity. When interacting with foreign investors, what do you say to them about the opportunities available in the Kingdom and what is their feedback?

Al-RUMAIH: A few years ago we, when we met with investors, we often had to explain the main economic indicators and even point out the geographical location of Saudi Arabia. It’s totally different now. Nowadays, when investors engage with us, they already possess a baseline understanding and are proactively discussing the next steps, such as processing their applications and delving into the specific details of the stock market. The conversation has shifted towards collaboration and exploring avenues for increased investments from their side. We are now seeking their input on how we can align ourselves with other international markets. The question of when to ease investor access is always at the forefront of discussions. Previously, the main markets weren’t accessible to everyone, requiring a minimum of $10 million in assets under management. However, we’ve made remarkable progress in reducing this threshold. It has now been lowered to $500 million and we anticipate further reductions in the future. The timing of these changes is a common query we receive and the answer is affirmative. In a unique scenario, we sometimes witness the government pushing the private sector, which has resulted in significant achievements and propelled us to higher rankings. The increased liquidity and collaboration with international investors have played a pivotal role in our journey. Feedback from institutional investors during meetings is continuous and we’re swift to make necessary changes based on their remarks. It’s amazing how quickly we’re progressing and accelerating in the right direction.

Saudi Arabia has also taken original leadership role through Green Saudi initiative and Green Middle East in light of the upcoming COP 28 in Dubai. How are you incorporating sustainability and ESG principles into the work of Tadawul and what role do you see Tadawul play on an additional level as an enabler and supporter of this private sector leading transformation?

Al-RUMAIH: ESG has been a significant focus for us, particularly when it comes to the Green Initiatives in the Middle East and Saudi Arabia. Recognizing the rapid growth of ESG as an investment theme, we took proactive steps in 2017 to prioritize it. As the market developers, it became our responsibility to attract liquidity to Saudi Arabia and we understood that educating companies about ESG was a crucial part of achieving this goal. Implementing ESG initiatives was one of the easiest tasks for us. In terms of governance, we adopted one of the best governance codes as recognized by the IMD. The social aspect of ESG aligns well with our cultural values of contributing to society. We had some difficulties because some companies didn’t want to disclose their social impact and preferred to keep it separate. However, through education and emphasizing the importance of transparency for publicly listed companies, we’ve witnessed a positive response. While negativity exists, it’s a matter of effectively communicating and reporting the efforts made. On the environmental front, our task was made easier as it stemmed from a top-down approach. The Vision 2030 initiative established clear targets, such as aiming for 50% of our energy to come from renewables and promoting afforestation. Furthermore, there is a commitment to achieving net-zero emissions by 2060, which has permeated across the private sector. Every company has developed its own plans to become more environmentally conscious. The translation of our efforts in ESG can be seen in the number of companies publishing integrated ESG reports. In the past, only five companies were producing such reports. Last year, it was 20 companies and this year we anticipate over 40 companies will have an ESG integrated report. Most companies are interested and have already started the process.

We are confident that a large percentage of companies will be publishing their ESG reports to demonstrate their progress. Last year, we introduced the voluntary capital market in collaboration with PIF, where we hold a 20% stake. We launched this market along with multiple goals aligned with Vision 2030 and the objectives of PIF. One of the key aims was to provide our companies with an opportunity to purchase carbon credits. Even if a company is a carbon emitter, this new platform enables them to offset their carbon emissions through the carbon market. Last year, we conducted the largest auction in history, resulting in a reduction of 1.4 million tons. Recently, we held another auction in Nairobi, Kenya where Saudi companies purchased carbon credits from African countries. This initiative has multiple benefits. The transaction amounted to $2.2 million dollars. When we engage in recruitment efforts, we not only provide assistance to companies, many of which are listed, but we also contribute to improving their ESG scores. Our strategic goal is to embed ESG principles in the DNA of Saudi listed companies. We are witnessing great participation, understanding and excitement from their side.

What is your final message to the readers of Newsweek about investing in Saudi Arabia’s capital markets?

Al-RUMAIH: I genuinely encourage everyone to visit Saudi Arabia and experience our rich culture and the warmth of our people. We extend a warm welcome to visitors from around the world. It’s not just about exploring investment opportunities, although I’m confident they’ll find great satisfaction in the Saudi market. We want people to understand what we’re trying to achieve here to make the world better. We are committed to making a positive global impact and invite people to understand our vision and aspirations. The Saudi market is undergoing remarkable growth, becoming increasingly sophisticated and dynamic. We are confident that the Saudi market will be one of the top international financial markets. It’s a very exciting time for us.