Saudi Arabia’s IPO Landscape and Corporate Governance
Saudi Arabia has been actively pursuing an agenda of economic diversification and privatization as part of its Vision 2030 initiative, which aims to reduce the Kingdom’s dependency on oil revenues and stimulate growth in non-oil sectors. As part of this initiative, the Saudi government has been encouraging both the state-owned enterprises and the private entities to go public through Initial Public Offerings (IPOs) on the Saudi Stock Exchange (Tadawul).
Consequently, the IPO fundraising jumped in Saudi Arabia during the first half of 2024 wherein Saudi companies raised $2.1 billion in 19 offerings, a 141% increase compared to the first half of 2023.
In terms of corporate governance, the Saudi Capital Market Authority (CMA) plays a crucial role in regulating the securities market and ensuring transparency and accountability in corporate practices. The CMA has introduced a number of regulations and guidelines to improve corporate governance standards for listed companies in Saudi Arabia, aligning them more closely with international best practices. One significant development was the permission granted to foreign investors to participate in IPOs under certain conditions, which included being classified as a Qualified Foreign Investor (QFI).
The QFI program was established to allow foreign institutions to invest directly in the Saudi stock market. To qualify as a QFI, foreign investors need to meet specific criteria set by the CMA, such as having a minimum level of assets under management and a track record of successful investment. By opening up IPOs to QFIs, Saudi Arabia aimed to increase foreign investment in the country’s stock market and promote economic growth.
In 2017, Tadawul had launched a parallel market, called Nomu for SMEs to raise capital. Nomu has lighter listing requirements compared to the conventional market. However, it is restricted to offering shares to qualified investors and not the general public.
AlGhazzawi and Partners specializes in assisting companies in completing their IPOs in the Saudi Arabian market and preparing the necessary regulatory documentation required for an IPO. This involves working closely with clients to draft prospectuses, offering memorandums, and other legal documents that comply with CMA’s regulations. In addition to documentation preparation, we provide strategic counseling to companies throughout the IPO process. This includes advising on the structuring of the offering, conducting due diligence, navigating regulatory requirements, and addressing any legal issues that may arise during the IPO process. The firm’s team of experienced lawyers works closely with clients to develop tailored strategies that align with their business objectives and ensure a smooth and successful IPO.
Our long-standing working relationship with the regulators and the CMA acts to simplify and streamline processes, reduce complications, and yield timely results for our clients’ capital market activities.
About Our Capital Market Lawyers
Our legal team has over five decades of experience in handling complex capital market transactions under both conventional and Islamic law. In fact, our Islamic finance specialists have advised on several “first-ever” Sharia-compliant capital market transactions – including the first fully limited recourse Sukuk structure and Sharia-compliant securitization structures.
Notable Capital Markets projects include:
- Guiding a well-known healthcare company in its own restructuring and that of its subsidiaries, in preparation for an initial public offering (IPO).
- Advising a leading Saudi company engaged in the industrial sector in preparation for a private placement and a potential offer.
- Aiding a group of investors in setting up foreign investment companies in real estate development, financial, and insurance services sectors.
Contact Our Capital Market Practice Group
No matter the complexity of your capital market-related transaction, our legal team has the capabilities and depth to provide sound guidance. With offices located in Jeddah, Dammam, and Riyadh, we support domestic and international clients across the Kingdom. Contact us to book a consultation.
FAQs on Capital Market practices, IPOs and Corporate Governance in Saudi Arabia
What is an IPO in Saudi Arabia?
An IPO (Initial Public Offering) in Saudi Arabia is when a private company offers shares to the public for the first time.
What are the key requirements for companies to conduct an IPO in Saudi Arabia?
Companies must meet criteria set by the CMA, including profitability, financial stability, and adherence to corporate governance standards.
What corporate governance standards must companies follow in Saudi Arabia?
Companies must comply with CMA regulations on board composition, financial disclosure, risk management, and internal controls.
What are the benefits of strong corporate governance for companies going public in Saudi Arabia?
Strong corporate governance enhances operational efficiency, risk management, investor attraction, and long-term value creation for shareholders.
Where can I find more information about the Saudi capital market practices?
