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The listing of Saudi Arabian Oil Co. in 2019 was a historical moment for Saudi Arabia and became the catalyst for accelerated activity in the Kingdom’s capital markets.
The world’s largest initial public offering valued the company at $1.87 trillion on its first trading day, propelling the Saudi Exchange into the global limelight and stimulating interest in the region’s largest bourse due to its increasing size, liquidity and supportive environment.
Looking back, this significant milestone would not have been possible without the crucial changes in regulations and attitudes set in motion by the Saudi Vision 2030.
Launched in 2016, Vision 2030 aims to accelerate developments tenfold while reducing the Kingdom’s dependency on oil, diversifying its economy, developing public sector services and attracting global talent and investments.
A key pillar of Vision 2030 is the Financial Sector Development Program, established to enable an effective financial sector that supports the development of the national economy. The program’s ambitions include raising foreign investor participation and attracting more companies to list on the Saudi Exchange by developing new and promising sectors.
Measures to mobilise Saudi Investor Relations
With this increased activity level has come a natural focus on the role of investor relations and what constitutes as best practice.
While the Saudi Exchange began running education drives on the value of investor relations as far back as 2010, the mindset of several companies remained to merely comply with regulations, with limited interest in applying additional measures to enhance disclosures or engage meaningfully with the market.
However, the status quo is changing fast, driven by the demands of an increasingly sophisticated investor base calling for an improvement in the quality and quantity of disclosures.
While the change process was met with some resistance, several ambitious companies are spearheading a shift in their corporate culture and embracing the opportunities to maximize and promote their investment story by adopting best practices in investor relations.
Naturally, as companies realize how effective market communications can be for success, they also face a shortage of skilled investor relations officers. As a result, there is a high demand for these rare talents in the Saudi market, especially among those who combine financial knowledge with effective communication skills.
The industry is mobilizing to address the situation, with the Saudi chapter of the Middle East Investor Relations Association partnering with the Saudi Exchange to roll out training and certification programs for potential Saudi IROs.
In the short term, aspiring and currently listed companies will need to balance internal and external resources to develop an effective investor relations function that meets the immediate needs of key stakeholders while also assuming their responsibility to progress local talent.
The challenges and opportunities posed by ESG
Beyond governance, an additional opportunity is also shaping up for regional listed companies as ESG is coming to the forefront of stakeholders’ agendas.
The Kingdom is taking steps to ensure that it leads on global environmental and social standards, including with the launch of the Saudi Green Initiative, which commits to reducing carbon emissions by 278 million tons per annum by 2030 and achieving net-zero emissions by 2060.
The Saudi Exchange is already a member of the UN-sponsored Sustainable Stock Exchanges initiative and has issued ESG disclosure guidelines and awareness to support listed companies.
There is no doubt that the increase in the Saudi Exchange’s market capitalization to over SR10 trillion ($2.66 trillion) and the significant increase in qualified foreign investors since new regulations came into play in 2018 prove that considerable strides have been taken.
Moreover, it also drives the regulators to continue pioneering measures to ensure continued progress.
Investor relations have also come a long way over the past 15 years, but this is still a journey toward best practice. In line with the stellar growth of capital markets, boardrooms across the region are waking up to the importance of investor relations to preserve value. With the added pressure of ESG, adaptability to change and the use of the right resources will cement Saudi Arabia’s position as a global financial leader and the emerging market investment destination of choice.
• Abdullah Al-Suweilmy is a senior adviser, capital markets and investor relations, Saudi Arabia.