Legal developments in Saudi Arabia

New work hour rules

The Labor and Workmen Law provides comprehensive regulations for the labour and employment environment in Saudi Arabia. Under the Labor and Workmen’s Law, the working day is set generally at eight hours, while the working week is set at 48 hours. Employees whose work exceeds these statutory maximums are entitled to overtime pay.

The Ministry of Labor recently announced that new regulated and unified working hours would be issued for the private sector. It is not clear when the new rules will be announced, but it appears that the regulations are motivated in part by encouraging Saudi Arabian nationals to seek employment in the private sector. (Saudi Gazette, 15 February 2015)

Prison for employing illegal workers

The Ministry of Interior added imprisonment as an additional punishment for employers who hire illegal workers in Saudi Arabia. The potential penalties for hiring illegal workers now consist of a fine of SAR 10,000, permit cancellation, and imprisonment, with increased severity for recurrent violations. (Arab News, 21 February 2015)

Penalties for failing to comply with the wage protection system

As we have described in previous Saudi Arabia Updates, Saudi Arabia’s Wage Protection System (WPS) requires employers to electronically report the salary and identification information of their employees and to pay their employees’ salaries solely through an in-Kingdom bank. The WPS is being implemented in stages, with initial application to the largest firms in Saudi Arabia. The WPS is currently in its fifth phase and applies only to firms with 320 or more employees.

As part of the Ministry of Labor’s attempts to enforce the requirements of the WPS, the Ministry announced that employees working for non-compliant businesses may transfer their employment without their employer’s authorisation. Ostensibly, this means that expatriate employees will be permitted to transfer their sponsorship from their existing, non-compliant sponsor to a new sponsor in Saudi Arabia, without the requisite letter of no objection from their existing sponsor. (Arab News, 27 February 2015)

Increased dialogue on court system expansion

The slow speed and unpredictable nature of litigation in Saudi Arabia has been a matter of concern amongst the Saudi Arabian authorities for some time. Recently, we described the Ministry of Justice’s announcement to expand the court system in Riyadh as a potential means of reducing the pressure on judges and courts from increasing caseloads.

Additionally, the Shoura Council has raised concerns regarding the pressures on the Saudi Arabian court system, the number of judicial vacancies and the absence of a culture of arbitration in Saudi Arabia. In that regard, the Shoura Council has requested the construction of additional courts. (Arab News, 13 February 2015)

Breastfeeding break for working mothers

The Ministry of Labor issued new regulations requiring private sector employers to provide working mothers with an infant less than two years old with an additional one-hour break during the working day for breastfeeding purposes. (Saudi Gazette, 16 February 2015)

Fast-tracked judicial freezing of assets planned

The Ministry of Justice and the Saudi Arabian Monetary Agency (SAMA) recently announced plans to establish an electronic link between the two bodies that would allow Saudi Arabian judges to order the disclosure or freezing of bank accounts in Saudi Arabia with immediate effect.

The two agencies cited an increase in financial crime and circumvention of judicial awards as motivation for the new system. (Arab News, 8 March 2015)

Saudisation of leadership posts

Saudisation is the colloquial term used to refer to Saudi Arabia’s official government policy of encouraging the employment of Saudi Arabian nationals in the private sector. The policy of Saudisation is enforced and implemented through several programmes and regulations in Saudi Arabia.

Human resources experts in Saudi Arabia have petitioned the Ministry of Labor to enforce a recently issued regulation requiring businesses in Saudi Arabia with more than 50 employees to hire Saudi Arabian nationals for at least six per cent of their leadership positions. (Arab News, 8 March 2015)

Potential eight-year limit for expatriate employees

The Ministry of Labor recently denied claims that it was planning to issue regulations that would limit the duration of residency for expatriate workers in Saudi Arabia to eight years. However, both Arab News and the Saudi Gazette reported statements from a source within the Ministry of Labor stating that the proposal was currently under study and would be implemented in stages. (Arab News and Saudi Gazette, 10 March 2015)

Implementation of new sponsorship transfer rules

On 1 December  2014, the Council of Ministers issued an order stating that the Ministry of Labor should transfer the sponsorship of workers at stalled government projects to new contractors if their services are needed by those new contractors. The order requires that new contractors assuming the sponsorship of workers prove their compliance with all financial, administrative and Saudisation requirements. Further, Saudi Arabian employees who are working at stalled government projects and are interested in transferring to a new contractor must receive the consent of the existing contractor, and their new contracts must be on the same terms unless agreed otherwise.

Implementation of the order has been at the discretion of the various Councils of Saudi Chambers throughout Saudi Arabia. Recently, the Makkah Chamber of Commerce announced implementation of the order. (Arab News, 20 February 2015)

Islamic banking and finance developments in Saudi Arabia

ICD and Afreximbank agree on private sector cooperation

The Islamic Corporation for the Development of the Private Sector (ICD) and the African Export-Import Bank (Afreximbank) entered into an agreement to cooperate in the development of the private sector in African countries through arrangement of syndications, structuring of sukuk and other Islamic financing deals, and co-investment in Islamic leasing companies. (Arab News, 12 March 2015)

SAR 3.9 billion 10-year sukuk issue by Bahri

The National Shipping Company of Saudi Arabia (Bahri) has announced that it will issue sukuk valued at SAR 3.9 billion having a tenor of  10 years by the end of March 2015 to raise funds in order to pay off debts and generate cash flow.

Bahri purchased the marine shipping unit of Saudi Aramco in 2012, making it the world’s fourth largest provider of very-large-crude-carrier (VLCC) services and the sole provider of VLCC shipping services to Saudi Aramco.

The sukuk issue will be arranged by HSBC Saudi Arabia, JP Morgan and SambaCapital. (Arab News, 5 March 2015)

IDB achieves attractive pricing for its US$1 billion  sukuk

The Islamic Development Bank (IDB) has successfully priced US$1 billion, five-year, trust certificates (sukuk) issued at par with a 1.83 per cent semi-annual profit rate under its US$10 billion trust certificate issuance programme. Despite an uncertain market environment, IDB achieved extremely attractive pricing, with the deal pricing approximately 22 bps inside the secondary market levels. The trust certificates will be listed on the London Stock Exchange, NASDAQ  Dubai and Bursa Malaysia under an exempt regime.

CIMB, Dubai Islamic Bank, GIB Capital, HSBC, National Bank of Abu Dhabi, NCB Capital, Natixis, RHB Islamic Bank and Standard Chartered Bank acted as joint lead managers and joint book-runners, with Bank of London and the Middle East as co-manager.

The issue saw strong participation from investors across the Middle East, Asia and Europe with 50 per cent allocated to MENA, 35 per cent to Asia, and 15 per cent to Europe, respectively. There was strong participation from real money accounts and official institutions providing credence to IDB’s credit strength. Of the issuance, 54 percent was allocated to central banks, 28 per cent to other banks, 10 per cent to fund managers and 8 per cent to other investor types. (Arab News, 9 March 2015)