Six Saudi financial services companies contemplating merger

Riyadh: In a bid to avoid grim fallouts of the looming global financial crisis, six Saudi companies in the field of financial services are mulling merger to form a single entity.

At the same time, a few other companies ponder liquidation after they had lost a major chunk of their capital in the recent stock market crash.

Noted financial analyst Mohammad Al Omran said that the companies licensed in the kingdom's financial services, more than 100 companies in number, are heavier than what the market can accommodate in the current scenario.

"These companies have very difficult options in front of them, either to proceed with further losing of the remaining portion of their capital or accept the current harsh reality by seeking alternatives," Al Riyadh Arabic daily reported quoting him as saying.

According to Saudi economists, nearly half of the financial services companies in the kingdom lack any well thought-out strategy to overcome the current crisis and they are in need for more financial pumping for mere survival.

"An increased strength of employees is another burden for them in the current scenario. Adopting corrective measures with regard to the number of companies and their scope of activities is the need of the hour, following the footsteps of the advanced financial markets," they observed.

The financial companies, which are eying merger, would face several hurdles in realising it, especially their financial liabilities, according to officials.

Earlier, the Saudi Capital Market Authority (CMA) had cancelled licence of three companies during the last two years.

The licence of Fursa Investment Company had withdrawn in August 2007, while that of Mohammad Al Shimaimari Financial Consultancy Company in October 2007 and Bourse Experts Company for Financial Services in February 2008.

According to market analysts, the CMA's decision to withdraw licences of these companies attributed to part of measures to strengthen confidence in the capital market, which is the largest Arab bourse.

There are about 106 licensed brokerage companies in the Saudi capital market. Their activities are supposed to be not transparent to a greater extent.

CMA has worked out a strategy to open new investment opportunities for these companies as well as for stock investors in extending financial services concerned with the capital market such as management of assets and running of mutual funds.

It is noteworthy that about 98 per cent of the daily transactions in the Saudi capital market are being executed by individuals.