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Sukuk can foster economic development in Saudi Arabia.

Sukuk market will be spurred by the global economic turmoil, as global deleveraging leads to a reduction in global bank credit available for Saudi companies and projects; funds are needed and the government is correctly reluctant to provide it directly.

"Sukuk can foster economic development In Saudi Arabia. Companies start to turn to the Sukuk market to fill the funding gap. Although important progress has been made in Sukuk issuance, the active names have tended to be large companies - led by GACA, SABIC and Saudi Electricity Company - as cost considerations and illiquid secondary markets have deterred others," said Richard Banks, Director of Euromoney Saudi Arabia Conference. "Furthermore, companies still need to turn to the dollar market if they want to be attractive to international funds. Companies also want to attract greater equity investment in order to fund growth. One way to do this is to open Tadawul to direct foreign participation."

Foreign investors have been able to buy Saudi shares indirectly by means of total return swaps via licensed brokers up to now. If Saudi Arabia opens its equity market to direct foreign participation, then it will be in MSCI index and account for around two per cent of that index.

Banks said, "Index-driven funds will have to invest on Tadawul which will allow liquidity to improve. However, in order to be on MSCI, concerns such as the extent of permitted foreign ownership and control of Saudi companies will need to be addressed."

Saudi companies also need to focus more on investor relations - which is good in some companies such as Almarai and Mobily however it is minimal or bad in most companies.

2012 CPI Financial. All rights reserved.

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Publication:CPI Financial
Geographic Code:7SAUD
Date:May 1, 2012
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