Saudi Arabia Sets New Rules for Foreign Investment in Securities with 49% Ownership Cap

Saudi Arabia’s Capital Market Authority (CMA) has approved a new regulatory framework for foreign investment in securities, introducing a 49 percent ceiling on total foreign ownership in any listed company or its convertible debt instruments. The updated rules, published in Umm Al Qura, the Kingdom’s official gazette, are designed to strike a balance between attracting global investors and maintaining financial market stability.

Under the new guidelines, foreign strategic investors are exempt from the 49 percent ownership limit, provided they hold their stake for at least two years. This exemption aims to encourage long-term commitments from institutional players with an interest in enhancing the operational or financial performance of Saudi-listed firms.

Qualified vs. Strategic Foreign Investors
The CMA distinguishes between two major categories of foreign investors. A Qualified Foreign Investor (QFI) must demonstrate significant financial strength, with assets of at least SAR 1.875 billion ($500 million) under management or ownership at the time of application. QFIs are typically institutions with extensive market experience and meet strict eligibility criteria set by the regulator.

By contrast, a Foreign Strategic Investor is defined as a legal entity seeking to acquire a direct stake in a listed company for not less than two years. Their purpose is not only financial but also operational, with an emphasis on contributing to the growth and performance of the company in which they invest.

Ownership Limits and Restrictions
The CMA confirmed that non-resident foreign investors may not own more than 10 percent of shares in any listed issuer. Additionally, foreign investors are prohibited from converting debt instruments into equity unless they fall within authorized categories or operate under CMA-approved swap arrangements.

While strategic investors are exempt from the 49 percent ceiling, the two-year minimum holding period ensures that their participation contributes to market stability and corporate development rather than speculative trading.

Six Categories of Eligible Investors
Foreign participation in Saudi Arabia’s main market will be limited to six defined investor groups:

1. Qualified foreign investors (QFIs).

2. Foreign strategic investors.

3. Beneficiaries of swap agreements with licensed institutions.

4. Clients of CMA-licensed portfolio managers.

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

6. Former residents of Saudi Arabia or GCC states with accounts opened during their residency.

This classification framework ensures that access to the market is controlled while allowing experienced or strategically aligned investors to play a role.

Oversight and Flexibility
The CMA also set strict rules for swap agreements, including segregation of client funds, full coverage of transactions, exclusive voting rights for licensed institutions, and compliance with anti-money laundering regulations.

At the same time, the regulator reserved the right to grant exemptions to its rules at its discretion, allowing flexibility in special circumstances.

The new framework represents another step in Saudi Arabia’s ongoing reforms to attract foreign capital while ensuring that investment flows contribute to the Kingdom’s long-term economic development.