Initial Public Offering - Saudi Arabia
In the early 1930s, capital markets were given a platform in Saudi Arabia but regulations were put in place only post 1980s through the Ministerial Committee, Tadawul and the Capital Market Authority (CMA). These were established to ensure fairness and efficiency in the market.
A public offer is one that fails to meet the requirements for a private placement.. The requirements for private placements include:
- An offer must be made by an authorized person and the offeror must inform the appropriate authority 10 days prior to making the offer with a declaration from the offeror and the authorized person as well as copies of any offering documents
- The offeror must inform the Authority at the earliest if there is any material change after the submission documents and before the start of the offer. The Authority may require the offeror to re-file the offering documents
- If after receiving the private placement notification, the Authority deems that the offer of securities is not in the best interests of the market it may carry out enquiries to assess and receive explanation on any relevant matters and require the provision of additional information to assess the accuracy of the information.
- If after receiving a private placement notification, the Authority believes that the private placement is not in the best interests of the investors and the market and may result in a breach of the Capital Market Law, it may give the offeror an opportunity to be heard, issue a notification to the offeror that the offer is not to be made or publish a notice prohibiting the offer, sale or transfer of securities.
- The offeror must collect and submit to the Authority a list of all individuals who have acquired securities and details about the proceeds once the offer is completed. If the offer is not completed the authorized person must submit a notification in writing to the Authority within 10 days mentioning failure to complete the offer.
The key regulatory authority for operations is the Capital Market Authority (CMA) who ensure the compliance of the Capital Market Law by issuing new rules and regulations. CMA plays an essential role in maintaining transparency, fairness, accountability and greater efficient operation of the market.
Legislative and Regulatory framework
Apart from the CMA’s framework, several other regulatory frameworks are in place, as mentioned below:
- Capital Market Law (Royal Decree No M/ 30 dated 2/ 6/ 1424H corresponding to 31/ 7/ 2003G)
- Listing Rules (CMA board resolution number 3-11-2004 dated 20/ 08/ 1425H corresponding to 4/ 10/ 2004G, as amended)
- Market Conduct Regulations (CMA board resolution number 1-11-2004 dated 20/ 08/ 1425H corresponding to 4/ 10/ 2004G)
- Offers of Securities Regulations (CMA board resolution number 2-11-2004 dated 20/ 08/ 1425H corresponding to 4/ 10/ 2004G, as amended by CMA board resolution number 1-28-2008 dated 17/ 8/ 1429H corresponding to 18/ 8/ 2008G)
- Merger and Acquisition Regulations (CMA board resolution number 1-50-2007 dated 21/ 9/ 1428H corresponding to 31/ 10/ 2007G)
- Companies Law (Royal Decree dated 22/ 3/ 1385H)
- Corporate Governance Regulations (CMA board resolution number 1-212-2006 dated 21/ 10/ 1427H corresponding to 12/ 11/ 2006G, as amended)
- Internal Regulations by the Capital Markets Authority (CMA)
Types of Offers
There are two types of offers - a retail offer and an institutional offer. A retail offer is a public offer which does not meet the requirements for a private placement. This is governed by the Offers of Securities Regulations and it can only be offered to sophisticated investors and a maximum of 60 non- sophisticated investors. A minimum subscription amount of 1,000,000 KSA Riyals must also be met. The issuer would also be required to file a prospectus with CMA for approval.
The key difference between the two offers is that retail offers can be offered to retail investors while institutional offers are focused primarily on sophisticated investors.
The issuer must ensure to submit a certified copy of the following documents as part of their application:
- Letter of appointment of financial advisor
- Letter of appointment of legal advisor
- All underwriting commitment letters
- Details of the team working on the application for registration and offer
- An electronic copy of all the above-mentioned documents
- Any other documentation that may be required by the Authority.
- and more.. (For the full list of supporting documents please refer publication)
After the offer has been received from the Authority and prior to the listing, the issuer must submit an original copy of the following documents to the Authority:
- A prospectus in Arabic signed on every page by the representatives of the issuer who are appointed as authorized signatories
- Updated commercial registration
- Five copies of the published prospectus in Arabic
- Five copies of the English translation of the prospectus
- The securities allocation model;
- The most recently reviewed interim financial statements
- All signed underwriting, sub-underwriting and distribution agreements entered into in connection with the offer
- An updated and signed letter that contains the applicable information as required by Annex 6 of these Rules
- An electronic copy of all of the above-mentioned documents
The copies of all documents must be preserved by the issuer for at least 10 years from the date of completion of the offer. In case of a litigation the issuer must preserve the copies until the end of that litigation.
The prospectus is a vital document while filing for an IPO. All information that will aid the inventor to make the best judgement of the issuer like the company’s activities, financial position,etc must be mentioned in the prospectus.