CMA restricts ownership to 49%

The Board of the Capital Market Authority (CMA) of Saudi Arabia has approved a regulatory framework governing foreign investment in securities, placing a 49 per cent ceiling on total foreign ownership in any listed company or its convertible debt instruments. However, foreign strategic investors are exempt from this cap, provided they hold their shares for a minimum of two years.

What is the difference between the qualified foreign investor (QFI) and the strategic foreign investor?

According to Capital Market Authority, a Qualified Foreign Investor (QFI) is a foreign investor that is qualified, in accordance with the provisions of Part (3) of Rules for Foreign Investment in Securities, to invest in the listed shares on the Main Market.

QFI according to part (3) of the rules:

1) shall have a legal personality.

2) shall have assets under its own or its group ownership, management, or custody of SAR (1,875,000,000) one billion eight hundred and seventy-five million Saudi Riyals (or an equivalent amount) or more, at the time of submitting an application to open an investment account. And the authority may reduce the minimum of these assets.

Foreign Strategic Investor: a foreign legal entity that aims to own a direct percentage in a listed company’s shares for a period of not less than two years, for the purpose of contributing in promoting the financial or operational performance of that listed company.

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The new rules were published in Umm Al Qura, the country’s official gazette, and are part of Saudi Arabia’s broader efforts to regulate capital inflows while maintaining financial market stability, a Saudi Gazette report said.

Ownership limits and strategic exemptions

According to the CMA, non-resident foreign investors are restricted to owning no more than 10 per cent of the shares in any listed issuer. Furthermore, foreign investors are not permitted to convert debt instruments into shares unless they fall within the authorised investor categories or operate under approved swap agreements.

Foreign strategic investors typically long-term institutional players with business or operational interests in the country, are not subject to the 49 per cent ownership ceiling. However, to qualify for this exemption, they must retain their investment for at least two years, a move aimed at attracting stable, long-term capital to the Saudi market.

Six categories of foreign investors

Foreign investment on Saudi Arabia’s main market is limited to six defined categories of non-resident investors:

1. Qualified foreign investors (QFIs).

2. Foreign strategic investors.

3. Ultimate beneficiaries of swap agreements with licensed financial institutions.

4. Foreign investors who are clients of CMA-licensed management firms.

5. Foreign investors residing in a Gulf Cooperation Council (GCC) country.

6. Former residents of Saudi Arabia or a GCC country who opened an investment account during their residency.

This classification ensures controlled access while enabling experienced or strategically aligned investors to participate in the market.

Tight oversight of swap agreements

The CMA’s rules also establish stringent conditions for institutions entering swap agreements. Key requirements include:

• Full segregation of client funds and assets.

• Comprehensive transaction coverage for the agreement duration.

• Exclusive voting rights retained by the licensed institution.

• Strict compliance with anti-money laundering (AML) laws.

Discretionary flexibility for exceptional cases

Importantly, the CMA reserves the right to grant exemptions from any part of the regulations, either at its own discretion or upon request, allowing room for flexibility in unique or strategic scenarios.