View from the Middle East: A reflection of best practice Investor Relations in Saudi Arabia over the past 15 years
By Abdullah Alsuweilmy, Senior Advisor of Capital Markets & Investor Relations, Saudi Arabia
The listing of Saudi Aramco in 2019 was a historic moment for Saudi Arabia and became the catalyst for accelerated activity in the Kingdom’s capital markets. Valuing the company at $1.87 trillion on its first trading day, the world’s largest Initial Public Offering instantly propelled the Saudi Exchange into the global limelight, stimulating interest in the region’s largest bourse due to its increasing size, liquidity and supportive environment.
Looking back, it is clear that this major milestone would not have been possible without the important changes, both in terms of regulations and attitudes, set in motion by the Saudi Vision 2030. Launched in 2016, Vision 2030 aims to accelerate developments tenfold whilst reducing the Kingdom ‘s dependency on oil, diversify its economy, develop public sector services, and attract global talent and investments.
A key pillar of Vision 2030 is the Financial Sector Development Program (FSDP) 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 level of activity has come a natural focus on the role of Investor Relations and what constitutes best practice. Whilst the Saudi Exchange began running education drives on the value of Investor Relations from 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. Whilst the change process is met with some resistance, several ambitious companies are spearheading a shift in their corporate culture and embracing the opportunities to maximize their opportunities to maximise and promote their investment story by adopting best practice Investor Relations.
Naturally, as companies are realising how effective market communications can be used as a tool for success, they are also facing a shortage of skilled Investor Relations Officers. There is a high turnover of these rare talents in the Saudi market, especially among those who combine the financial knowledge with effective communication skills.
The industry is mobilising to address the situation with the Saudi chapter of the Middle East Investor Relations Association (MEIRA) partnering with the Saudi Exchange to rollout training and certification programs for potential Saudi IROs. In the short term, aspiring and current listed companies will need to balance internal and external resources to better develop an effective Investor Relations function that meets the immediate needs of key stakeholders whilst also assuming their responsibility to progress local talent.
The challenge and opportunity of ESG
Beyond governance, an additional opportunity is also shaping up for regional listed companies as ESG is coming to the forefront of stakeholders’ agendas. Saudi 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 mtpa by 2030 and achieve 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 to support listed companies and raise awareness of ESG.
There is no doubt that the increase in the Saudi Exchange’s market capitalisation to over SAR 10 trillion, and the significant increase in Qualified Foreign Investors since new regulations came into play in 2018, proves that the correct strides have been taken. It also gives the impetus for the regulators to continue taking pioneering measures to ensure continued progress.
Investor Relations has also come a long way over the past 15 years, but this is still a journey towards 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 using the right resources available will be what cements Saudi Arabia’s position as a global financial leader, and the emerging market investment destination of choice.