An initial public offering (IPO) is one of the best ways for companies to fund their business expansion plan and launch new products. For instance, Saudi Arabia is likely to see over 50 initial public offerings (IPOs) this year, and has already seen 35 of these so far.
This was revealed by Mohammed Al-Rumaih, CEO of Saudi Exchange, at the EFG Hermes 10th annual investor conference in London on the theme ‘A New Era of Opportunities’.
Overview of the Saudi IPO market
The Kingdom of Saudi Arabia (KSA) dominated the MENA region’s IPO activity with nine out of 10 listings in Q1 2024 raising $724 million. The highest proceeds were from Modern Mills ($314 million) followed by MBC Group ($222 million) and Middle East Pharmaceutical Industries Company ($131 million), which were listed on Tadawul. The remaining six IPOs took place on the Nomu (total proceeds of $57 million). In 2024, the KSA IPO activity spanned across a variety of sectors, such as health care, food and beverages, and media and entertainment, and it is expected that this trend will continue, according to a report by Ernst & Young.
Despite the ongoing and challenging geopolitical environment in MENA, there has not yet been any sign of a slowdown in IPO activity. An additional 25 private companies and 10 funds intend to list on the MENA exchanges in 2024, across various sectors. The KSA leads with 21 announced IPOs followed by one company in the United Arab Emirates (UAE). Additionally, outside GCC, Egypt and Algeria have announced one IPO each.
Who regulates the Saudi IPO market?
The Saudi IPO market is governed by the Capital Market Authority (CMA). Additionally, it oversees the Kingdom’s securities trading and issuing regulations. Unofficially founded in the early 1950s, the CMA in Saudi Arabia ran smoothly until the 1980s, when the country’s fundamental laws were established. It is a government agency that operates with complete financial, legal and administrative autonomy and is closely connected to the prime minister.
The CMA’s duties include developing and regulating the Saudi Arabian capital market and creating the necessary guidelines and rules to carry out the capital market law’s requirements. The main goals are to protect investors and dealers from unethical behavior in the market, foster a climate that is conducive to investment, increase trust, and strengthen openness and disclosure rules in all listed businesses.
The following responsibilities are assigned to the CMA:
- Control and expand the financial industry. Additionally, encourage the use of suitable guidelines and methods for all divisions and organizations engaged in securities trade operations.
- Safeguard the public and investors against unscrupulous and unfair tactics that involve insider trading, manipulation, fraud, deception and cheating.
- Ensure efficiency, fairness and transparency while transacting in securities.
- Create suitable policies to lessen the risks associated with securities transactions.
- Create, control and oversee the issuing of securities and transactions involving undertrading.
- Control and keep an eye on the operations of organizations operating under CMA.
- Control and maintain vigilant on the complete disclosure of information about issuers and securities.
Saudi Stock Exchange (Tadawul)
The Saudi Stock Exchange, or Tadawul, has expanded rapidly in a brief period of time. In June 2023, its market capitalization of SAR11 trillion placed it as the 10th largest exchange in the world. Prior to this, it was merely a local investor’s exchange that had minimal offerings in capital market products and a limited capacity to raise capital. This accomplishment is the result of the changes that Tadawul and the CMA implemented recently as part of the Kingdom’s efforts to diversify its economy in accordance with Vision 2030 goals. The amount of international investors’ ownership in the capital market rose from SAR198 billion in 2019 to SAR376 billion in June 2023 as result of Tadawul’s efforts to get the exchange recognized worldwide and provide the IPO candidates with a broader investor base, as per a report in KPMG.
Despite the significant degree of unpredictability that the world economy currently faces, such as rising interest rates and inflation, problems with the supply chain, and geopolitical upheaval, the capital markets of the Kingdom demonstrated resilience by obtaining exceptional funding of SAR50.8 billion in 2022 through rights issues and IPOs. Higher liquidity is the main reason for the increasing activity in the capital markets, aside from the reforms and worldwide recognition. Additionally, the government’s drive for the privatization of the Public Investment Fund (PIF) and other government enterprises, as well as the trust of investors. Positive trends in oil prices have financed the Kingdom’s economy’s entire growth, which includes the capital markets’ expansion.
Read more: Saudi Arabia’s Fourth Milling Company to raise $228.9 million from IPO
Key information about Saudi exchange
The Saudi Exchange is a fully owned subsidiary of the Saudi Tadawul Group. It was established in March 2021 following the transformation of the Saudi Stock Exchange (Tadawul) into a holding company, Saudi Tadawul Group. It is Saudi Arabia’s dedicated stock exchange and the largest stock exchange in the Middle East. The exchange carries out listing and trading in securities for local and international investors. The official source of all market information, Saudi exchange is instrumental to achieving long-term growth plans for the group. And providing market participants with attractive and diversified investment opportunities.
Saudi exchange is the 9th largest stock market among the 67 members of the World Federation of Exchanges. It is the dominant market in the Gulf Cooperation Council (GCC). The Saudi exchange is the authorized entity in the Kingdom of Saudi Arabia to act as the Kingdom’s securities exchange, listing and trading in securities. It mainly carries out listing and trading in securities, as well as deposit, transfer, clearing, settlement and registry of ownership of securities traded. The Saudi exchange is also the official source of all market information.
Here are some interesting points about Saudi stock exchange, as per the Tadawul website:
- The overall value of all listed companies traded on Saudi exchange main market as of June 2024 is SAR10.05 trillion
- Listed companies on the Saudi exchange main market as of June 2024 stand at 238
- The overall size of listed sukuk and bonds on the Saudi exchange as of June 2024 is SAR601.74 billion
- The total number of shares trades on Saudi exchange main market as of June 2024 is 6.8 billion
Saudi IPO process and requirements
The preparation and share selling stages make up the two stages of the IPO process in Saudi Arabia. During the first step, the company appoints external consultants and financial advisers. And, with the assistance of advisors, prepares the offering’s internal regulatory documentation. That includes the offering request and registration. The business performs the required administrative, financial, legal and commercial actions. This is to guarantee that all relevant data is accurate and complies with the IPO documentation. The business will also lay out a roadmap for its objectives and upcoming growth. At this stage, the company publishes the offering prospectus. That contains the offering terms, regulatory disclosures, and commitments and promises.
Following the preparation phase, the business submits a request for approval of the prospectus and IPO registration statement to the Saudi Stock Exchange (Tadawul) and the CMA. The financial market and CMA will decide the charge. That must be paid by the firm filing the application for shares listing. In order to be listed on the main market, the issuer must be a joint stock company. And must have at least 200 public shareholders. To list on the Nomu-Parallel Market, the minimum number of shareholders must be 50. In order to list on Tadawul, the issuer must float at least 30 percent of its share capital. And 20 percent of the issued shares, or SAR 30 million.
Following the CMA’s acceptance of the offering, Tadawul is permitted to allocate a smaller portion of the share capital or public shareholders. This is in accordance with the quantity of shares in the same category and their distribution to the public shareholders. For Tadawul, the issuer must have a minimum market capital of SAR300 million. And, for the parallel market, SAR10 million.
IPO subscription process
Underwriting an IPO via Saudi National Bank (SNB) branches
Below are the steps for IPO subscription:
- Personal presence of the authorized agent or the IPO applicant.
- If family members identified in the family book would want to subscribe, fill out the subscription application form and add them at their own discretion.
- Put your signature on the document.
- Attach the necessary documents, based on the applicant’s status.
IPO underwriting through SNB ATM
Below are the terms of subscription:
- Only SNB clients can subscribe using SNB ATMs.
- Does not need a subscriber to have ever participated in an IPO.
- Require the client to have previously gone through an IPO with SNB (if affiliates are present).
- Unable to subscribe to affiliates that are not already subscribers.
- Through the use of this service, clients can subscribe without visiting SNB branches or requiring the completion of a subscription form.
- Once approved, the application will be deemed final.
IPO underwriting through digital platforms
Here are the steps for subscription:
- Only SNB clients can subscribe using SNB ATMs.
- Does not need a subscriber to have ever participated in an IPO.
- Require the client to have previously gone through an IPO with SNB (if affiliates are present).
- Unable to subscribe to affiliates that are not already subscribers.
- Through the use of this service, clients can subscribe without visiting SNB branches or requiring the completion of a subscription form.
- Once approved, the application will be deemed final.
Overview of the Capital Market Authority
The CMA has undertaken numerous initiatives to improve the appeal of the Saudi capital market and facilitate the direct or indirect entry of foreign investors. These initiatives include permitting foreign residents to make direct stock market investments, permitting foreign investors to do so through swap agreements, permitting qualified foreign investors to make investments in listed securities, permitting foreign strategic investors to hold strategic stakes in listed companies, and permitting foreign investors to make direct debt instrument investments. This is apart from the latest modifications to the Regulations for International Investment in Securities, which are intended to facilitate international investors’ access to the Saudi capital market.
With the Financial Sector Development Program, the Capital Market Authority hopes to help realize the objectives of the Kingdom’s 2030 vision by fostering a climate that attracts both domestic and foreign investment. The CMA develops infrastructure, improves stability, and raises the bar for governance and transparency in the financial market in addition to promoting investment and advancing the market’s role in capital formation.
Overview of previous Saudi IPOs
In recent years, the Saudi Exchange (Tadawul) has seen a large number of IPOs. Saudi Aramco had the largest share sale in Saudi Arabian market history in 2019, raising SAR96 billion. Several IPOs made their main market and Nomu-parallel market debuts as well. Amidst the COVID-19 pandemic in 2020, Tadawul only saw three listings: Dr. Sulaiman Al Habib Medical Services Group, Amlak International for Real Estate Finance Co., and BinDawood Holding Co. The following nine companies listed their shares in 2021: Arabian Internet and Communications Services Co. (solutions), Tanmiah Food Co., Alkhorayef Water and Power Technologies Co., Theeb Rent a Car Co., ACWA Power, Arabian Contracting Services Co. (Al Arabia), Nayifat Finance Co., and Saudi Tadawul Group Holding Co.
Seven new listings on Tadawul, including Elm Co., East Pipes Integrated Company for Industry, Scientific and Medical Equipment House Co. (Equipment House), Al-Dawaa Medical Services Co. (DMSCO), Nahdi Medical Co., and Al Masane Al Kobra Mining Co. (AMAK), demonstrate the IPO momentum that has persisted in 2022. The CMA earlier noted in a statement that 2021 saw a spike in IPOs. The number reached a record level of 21. IPOs continued to rise quickly in 2022, with a total of 18, reflecting the market regulator’s growing role in funding economic expansion.
Saudi IPO market trend
The transaction value in the IPO market is projected to reach $4.24 billion in 2024, according to Statista. It is expected to show an annual growth rate (CAGR 2024-2025) of 20.75 percent. That results in a projected total amount of $3.36 billion by 2025. The average transaction value in the IPO market amounts to $0.16bn in 2024. From a global comparison perspective, it is shown that the highest transaction value is reached in China ($63,330.00 million in 2024).
Looking ahead
Tadawul supports the Vision 2030 goals by increasing the private sector’s contribution to the economy. Also, diversifying the economy through the reduction of dependence on oil. This will draw in more foreign investments, and growing the SME sector. Making Saudi Arabia a more investor-friendly entity has been a national priority. Some of the changes that support such initiative are setting up a dedicated team. That caters to international investors, asset managers, index providers. And, brokers in addition to managing international outreach efforts. The exchange also plans to expand its team to operate in international locations, starting in London later this year, as per Logic Consulting.
The stock market is structured to provide the facilities to entrepreneurs and investors need. While the bureaucracy is being streamlined to make the process of conducting business easier. In a view of this, the Saudi IPO market will certainly have a brigher future. As many companies might issue IPO in the coming months.
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