Here are details of retail investors allocation rates in Saudi IPOs

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Some recent initial public offerings (IPOs) in the Saudi market witnessed a larger allocation for retail investors than 10%. 

These offerings included Al Masane Al Kobra Mining Co. (AMAK), Elm Co. and Saudi Tadawul Group Holding Co., where 30% of the total shares offered were allocated to individuals. 

The IPO of Lazurde Co. for Jewelry in 2016 was the last offering in the Saudi market that saw more than 10% of the shares offered allocated to individuals, with 30% earmarked for individuals.

Meanwhile, Alandalus Property Co.’s IPO in 2015 witnessed the allocation of 40% of total shares offered to retail investors. In 2014, Electrical Industries Co.’s IPO offered 50% share allocation to individuals.

Chairman of the Saudi Capital Market Authority (CMA) Mohammed ElKuwaiz noted that the retail investors’ subscriptions ratio specified in the Instructions for Book Building Process and Allocation, which was amended in 2018, aimed at increasing the efficiency and ease of the offering and listing process, where one of the amendments made was to give the company and financial advisors greater freedom to identify the categories participating in the IPO and allocation ratios.

Following the amendment, flexibility increased significantly in companies seeking to list their shares, which is one of the many factors that contributed to the success of an IPO such as Saudi Aramco, he added.  

The larger the IPO, the greater the need for flexibility in the allocation process between institutional and retail investors. 

“Despite all the advantages that the amendment had contributed to, we had stood, with increased momentum, on some of the observations that we need to address, as part of the regular review of regulations,” the CMA chairman indicated.

He also emphasized that allocation between institutional and retail investors may change depending on the nature of the offering and can vary from one IPO to another, which is determined by the efficiency of the offering pricing and trading.

In March, the CMA published a draft amendment to the Instructions for Book Building Process and Allocation Method in IPOs.

The amendments included allowing the financial advisor to determine the categories entitled to participate in the book-building process from the categories stipulated in the instructions provided that public funds are among them.

It also covered determining the responsibilities of the financial advisor in relation to verifying the financial solvency of the participating entities, and their ability to pay the value of the shares requested in the bidding participation application when allocated.

In addition, the amendments include developing the provisions regulating the shares allocation for participating entities after completing the book building.

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