Saudi Capital Market Authority proposes tightening initial public offering rules
Reuters – Saudi Arabia’s Capital Market Authority (CMA) has proposed stricter rules for initial public offerings (IPOs) as part of its “IPO Enhancement Project” and efforts to strengthen the market, according to a statement issued this week.
The proposed rules are intended to enhance investor protection and market transparency, while shifting more of the execution and financing risks associated with IPOs to investment institutions and underwriters.
Under the draft proposed rules, investment institutions participating in the book-building process would be required to demonstrate that they have the liquidity and capacity to pay for the IPO orders they support.
The statement noted, “The proposed project aims to strengthen the linkage between orders submitted by participating entities and their actual liquidity and repayment capacity, and to solidify commitments to orders under clear regulatory provisions, thereby supporting the reliability of the book-building process and its role in determining the offering price.”
The proposed provisions also include strengthening the role and responsibility of the underwriter in the offering process from the book-building stage, by requiring the underwriting agreement to be signed and become effective before the book-building process begins, with the underwriter’s commitment to purchase the entire offering becoming effective at the start of the book-building process.
It was stated that if the underwriter’s acquisition of the offered shares results in a breach of the requirements necessary for listing under the listing rules, the issuer’s shares will not be listed, and the underwriter will be required to purchase all of the offered shares.
The draft rules include mandatory disclosure of data, forecasts, and financial performance indicators. The CMA considered that the proposed regulatory provisions will enhance support for the efficiency of the overall IPO system, by requiring the financial advisor to exercise the necessary professional diligence regarding statements and future expectations of the issuer, including forward-looking financial performance indicators.
