The Saudi Capital Market Authority (CMA) will halt trading on the companies, which will obtain regulatory approvals for transition to the main market, for a maximum of five trading sessions, based on their last closing price on Nomu Parallel Market, Abdullah Bin Ghannam, CMA Deputy for Listed Companies and Investment Products, told Argaam in an exclusive.
Those companies will fulfill all requirements of the Saudi Stock Exchange (Tadawul).
Many Nomu-listed firms aim to transition to the main market. The related timing and mechanism depend on the nature, profit and economic cycle of those firms, Bin Ghannam said.
When asked about corporate transition from Tadawul to Nomu, he said this is impossible, as Nomu will not be considered a market for low performance firms.
Here is the full interview with Bin Ghannam:
Q: As four Nomu-listed firms have applied for transition to the main market, what about the firms remaining in the Parallel Market? Any new firms are planning to list their shares on Nomu?
A: The current reforms almost serve as an additional basis for financing companies and entrepreneurs on the level of entrepreneurship finance and expanding offerings. They also facilitate the listing of small and medium enterprises (SMEs) in a market that fulfills their needs, as SMEs cannot meet the main market requirements. These reforms include facilitating new listings on Nomu through direct listing. The reforms also ease financial statements requirements for Nomu-listed companies through disclosure of semi-annual figures. The success of markets depends in general on attracting liquidity and issuers.
Many Nomu-listed firms aim to transition to the main market. The related timing and mechanism depend on the nature, profit and economic cycle of those firms. No exact number is available for the firms willing to transition, but a large number of firms have shown interest.
Q: Can you explain the meaning of “exempt offering”?
A: Stocks and public funds are floated either in initial public offerings (IPOs) or private placements. IPOs give rise to listed stocks and public funds. In private placements, unlisted companies, private funds, certain financial derivatives and securities are offered to a certain group of sophisticated investors. Contrary to private placements, IPOs are largely regulated and shares are usually offered to the general public, Bin Ghannam said.
Exempt offering is almost the same as the private placement, where unlisted firms, securities or SMEs are offered. Such firms cannot fulfill IPO requirements and cannot also raise the target funds. The exempt offering has a maximum of SAR 10 million. Offerings of less than SAR 10 million will be exempt from market requirements and can be floated without financial advisors. Companies are only required to notify the market regulator.
Anas Al-Shugayr, Director of Initiatives for Development of Investment Products, said the latest amendment allowed offerings to all retail investors, rather than sophisticated investors. A ceiling was set for the amounts raised for each investor (excluding qualified investors) at SAR 200,000. The maximum of retail investors (excluding sophisticated investors) in the exempt offering was set at 50.
These stocks will not be tradable. The exempt offerings help entrepreneurs and SMEs raise the funds required for their start-ups or expansion of existing operations under the SAR 10 million ceiling. There is no minimum limit for the offering, Al-Shugayr added.
Q: As several firms on Nomu approved transition to the main market, when will the transition take place? What are the key requirements for transition?
A: Al-Muthanna Bin Ali Al-Onaizan, the IPO Unit, said after the companies’ boards of directors approved the transition, a request should be submitted to Tadawul, which will approve the move after coordination with the market regulator. Stocks of new entrants to the main market will be suspended for a maximum of five sessions, ahead of debut. The key requirements for transition is the fulfillment of the main market conditions, mainly governance and general public ownership. The market capitalization of those firms shall stand at SAR 200 million or more in the last six months ahead of submitting the transition request. They should have been listed on Nomu for two years. Their board reports should be also disclosed to the public.
The prices of those stocks will be based on their last closing price on Nomu.
Q: Have these requirements been met by the firms that announced their boards’ recommendation on transition?
A: Compliance of those firms will be assessed after submitting the transition request. No approval has been yet given to any firm.
Q: Is Tadawul going to change the fluctuation rate of Nomu firms after completing the transition?
A: Fluctuation rate mechanisms are always reviewed by Tadawul, in coordination with the market regulator. All market requirements shall apply to those firms after finalizing the transition.
Q: Will low-performing firms on Tadawul move to Nomu?
A: Of course, not. Nomu basically aimed to help SMEs move to the main market. Nomu cannot be deemed as a market of low-performers.
Q: What is the cross listing mechanism that allows firms in the GCC to list on Tadawul?
A: There is a difference between offering and listing, especially when taking into account foreign firms and direct listing. Foreign firms will be listed, not offered. The foreign firms listed in another market will be also listed in Saudi Arabia. Investors in the Saudi market will buy and sell non-Saudi stocks in the local market.
Leading global markets allow cross listings and sometimes foreign firms outnumber local players in a market. Saudi Arabia has allowed listings of firms that are already listed in their markets. An evaluation will be conducted after allowing foreign companies to list on Tadawul.
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