In recent years, the CMA and the Tadawul have sought to encourage initial public offerings (“IPOs”) of shares in Saudi Arabia by updating their relevant regulations in an attempt to have a clear listing process and continuing obligations for issuers. The updated regulations also provide a clear delineation between the position of the CMA as the competent regulatory authority for listed issuers, including approving listings and policing continuing obligations, and that of the Tadawl as Saudi Arabia’s listing authority. In this regard, and to provide further confidence to institutional investors, the CMA’s mandatory corporate governance requirements have been updated to align with (and in some cases exceed) international standards for issuers.
Coupled with recently permitting foreign investors to invest in IPOs (provided such investors meet the requirements for a Qualified Foreign Investor), the CMA has also sought to increase investor confidence in IPOs by issuing new regulations to clarify its position on certain key procedures in an IPO.
Specifically, the Instructions of Book Building Process and Allocation Method regulates the process by which the financial institutions acting as underwriters price the shares for the IPO and allocate shares to investors, whilst the Instructions on the Price Stabilisation Mechanism sets out the means by which the underwriter acting as price stabilisation manager may manage the price of the newly listed shares for a specified period. Additionally, the CMA has illustrated some flexibility in interpreting these rules; for example, the CMA’s regulations refer to the underwriter of an IPO being a Saudi entity authorised by the CMA, but we are aware that the CMA has permitted foreign institutions regulated abroad to formally act as a book builder for an IPO in relation to potential foreign investors.
These developments, coupled with the listing of part of Saudi Aramco’s shares on the Tadawul, has increased interest in Saudi IPOs, both from potential issuers and investors. In 2019, for example, the mall operator Arabian Homes carried out an IPO with an initial deal size of SAR2.47 billon, making it one of the largest private sectors IPOs in Saudi Arabia since 2014.