Saudi Arabia’s CMA proposes rules to boost secondary share offerings

Saudi Arabia has proposed a framework for secondary offerings to increase the attractiveness of the capital market to investors and boost the weight of the kingdom in emerging market indexes, the Capital Market Authority (CMA) said on Wednesday.

The Saudi market regulator invited participants in the capital market as well as relevant and interested persons to participate in a 30-day public consultation on a framework to regulate secondary offerings.

CMA said the framework aims to regulate secondary offerings by allowing an existing shareholder to partially or completely sell their shares in a listed company in the capital market through an offering process.

The regulator said secondary offerings will increase the number of tradable shares of the listed companies and the market weight in emerging market indices, which translates into a more diverse investor base in the kingdom capital market.

“This shall increase the weight of the Saudi capital market in emerging market indices, such as MSCI and FTSE Russell, among others, expand the pool of shares available for trading and boost market liquidity,” the Saudi CMA said in a statement.

The proposed rules outline the provisions for applying the book-building process to determine the final offering price, the allocation of shares, and the price stabilisation mechanism.

The framework will contribute to the stability of the share price after the secondary offering through additional allocation.

Previously, secondary offerings in Saudi Arabia were done with a waiver from the regulator, according to a Bloomberg report. The new rules would formalise them, to encourage more of such deals.

The CMA said it will take into full consideration the opinions and comments of relevant and interested persons to approve the framework.

Saudi Arabia boosts its capital market

Meanwhile, over the years Saudi Arabia has introduced initiatives to encourage more domestic listings as part of the Vision 2030 economic transformation plan.

State-backed companies in the kingdom are stepping up efforts to boost the domestic equity market while supporting the government’s efforts to diversify the economy away from reliance on oil revenues.

EY said in November that the kingdom dominated the Middle East’s IPO activity in Q3 2023 with five out of the region’s six listings coming from the kingdom.

Saudi Arabia’s Lumi Rental Company raised  $290m (SAR1.09bn) from an initial public offering (IPO) on the Tadawul in September.

Saudi oil driller ADES Holding also raised $1.22bn in an IPO in September while Cargo firm SAL Saudi Logistics Services Company jumped as much as 30 per cent on its Riyadh trading debut after raising $678m in what is the kingdom’s second-largest IPO this year.

Demand for listings in Saudi Arabia remains resilient after 27 companies unveiled plans to go public on the local bourse.

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