Saudi Arabia is doubling its efforts to push international financial companies to strengthen their presence locally, as those who do not show sufficient commitment to the Kingdom may soon find it difficult to win large businesses in the Kingdom, which is heading towards huge investments, according to Bloomberg.
The $925 billion Saudi Public Investment Fund has added new details to the documents it sends to banks hoping to do business with it, seeking to find out whether their companies have obtained a regional headquarters license in the Kingdom or not.
More difficult to resist
After banks initially hoped to avoid these rules, resisting the pressure became more difficult, especially after Goldman Sachs Group became the first large company on Wall Street to obtain such a license.
“Once local headquarters licenses are sufficiently approved in a sector, it increases pressure on other players in the sector to follow suit,” said Walid Rasromani, national managing partner for Saudi Arabia at the law firm Linklaters. “Many companies in the financial sector are carefully looking at the rules for obtaining a headquarters.” Local at the moment.
Bloomberg quoted informed sources as saying that requesting this license has now become part of dealing with the Public Investment Fund, adding that the Fund does not currently require companies to obtain licenses, although the question about their regulatory status is seen as increasing pressure to obtain it.
This has raised concern among banks seeking to work with the fund, although the demands so far do not appear to have affected their chances of winning transactions.
According to Bloomberg, the ability of companies – including JP Morgan and Citigroup – to pursue deals in the largest Arab economy is at stake, amid an investment program worth several trillion dollars.
Just this week, the kingdom enlisted the help of a group of banks to help it achieve its largest stock sale of the year, as it looks to raise up to more than $12 billion by selling part of its stake in the oil giant Saudi Aramco.
It was not only banks that were under pressure to establish headquarters in Saudi Arabia in order to maintain lucrative contracts with the government and companies linked to Saudi Arabia.
Consulting firms McKinsey & Co., Boston Consulting Group and Teneo have obtained licenses in the past few months.
Hundreds of licenses
Saudi Arabia announced a law to establish a headquarters in 2021 as a means of stimulating foreign direct investment and urging international companies to reinvest some of the money they earned from working with the government in the country.
These rules stimulated companies such as Boeing, Amazon, and PricewaterhouseCoopers to strengthen their presence in Saudi Arabia, and in total, licenses were granted to more than 400 companies.
Foreign banks have, until recently, remained marginalized, and in a sign of the complexity of the problem, some lenders avoid using the term headquarters for any of their offices in the Middle East.
Bloomberg believed that the Saudi insistence on banks obtaining a headquarters in the Kingdom risks intensifying competition with the two neighboring financial centers, Abu Dhabi and Dubai, which most international banks have used for years as a convenient base for managing their operations in the Gulf.
Challenges
Some banks have sought to meet Saudi demands by appointing top Saudi dealmakers, locating key executives in Riyadh, and pledging to move more bankers to the capital.
These efforts did little to placate the kingdom, according to some bankers, who held informal talks with Saudi officials who urged them to expand in Riyadh, and also issued explicit warnings that if they continued to travel from other centers, they would not be welcomed as advisors.
But, even if they obtain a Saudi license, the banks will face other challenges, for example, under the Saudi rules that will be imposed on them, they must have a minimum of 15 employees with 3 senior executives in the country.
In addition, at least two other countries must report to the banks’ Saudi headquarters, and larger institutions can comply with these rules by moving help-office staff to the country, but for smaller investment banks, such a move would be more difficult.
