CMA seeks public input on IPOs enhancement controls

Logo of Capital Market Authority (CMA)

The Capital Market Authority (CMA) invited interested capital market parties to share their feedback on the regulatory provisions associated with the draft bill to enhance the initial public offering (IPO) practices.

The consultation period will last for 30 calendar days, ending on Oct. 22.

The proposed draft aims to strengthen the linkage between the requests submitted by participating entities and their actual liquidity and ability to pay, and to reinforce the commitment to requests in accordance with clear regulatory provisions, thereby enhancing the reliability of the book-building process and its role in determining the offering price, according to a CMA statement.

This draft comes as part of CMA's ongoing efforts to develop the capital market, keep pace with its growth and evolving practices, enhance the efficiency of the offering and pricing process, and reinforce the roles and responsibilities of the parties involved.

The proposed regulatory provisions also include enhancing the quality of information available to investors, thereby increasing the reliability of the requests submitted during the book building stage and supporting the price discovery process, which raises the efficiency and quality of the offering and pricing mechanisms, said the regulator.

It added that the proposed regulatory 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 executed and become effective before the commencement of the book-building process, with the underwriter's obligation to purchase all shares offered becoming effective upon the commencement of the book-building process.

If the underwriter's ownership of the offered shares results in a failure to meet the listing requirements under the Listing Rules, the issuer's shares shall not be listed, and the underwriter shall purchase all shares offered.

The proposed regulatory provisions also require the issuer's financial advisor and any other licensed financial institution involved in receiving participation orders to undertake additional regulatory procedures in relation to orders submitted during the book-building process.

Most notably, they must verify that the participation orders submitted reflect the actual value of liquidity available to the investor, limit the acceptable means of verifying the financial capacity of orders submitted by participating entities to cash or cash equivalents, and ensure that such orders become binding for payment no later than the deadline for payment of the subscription amount, in accordance with the timeline specified in the prospectus. This would strengthen the link between orders submitted during the book-building process and the liquidity or actual ability to pay.

As for the issuer, the proposed regulatory provisions require the disclosure of forward-looking statements and forecasts relating to the issuer, including forward-looking financial performance indicators, for a period of at least one year.

This would support the determination of the offering price based on clear information, thereby enhancing the reliability of the order book and its role in the pricing process.

These proposed regulatory provisions will further enhance the efficiency of the IPO framework as a whole by requiring the financial advisor to exercise the necessary professional due diligence in relation to the issuer's forward-looking statements and forecasts, including forward-looking financial performance indicators.

The draft bill will also contribute to reinforcing commitment to participation orders submitted during the book-building stage in accordance with the proposed regulatory provisions, enhancing discipline and the efficiency of the offering process, and strengthening the integration of the roles and responsibilities of the underwriter in the offering process from the book-building stage, as well as the roles of the issuer, financial advisor, underwriter, and participating entities.

This would enhance the alignment of interests among the relevant parties and increase the reliability of information available to investors through the disclosure of forward-looking financial performance indicators and forecasts based on reasonable and measurable assumptions.

If approved, the amendments would contribute to enhancing the efficiency of capital allocation in the national economy and improving the attractiveness of the Saudi capital market by increasing transparency and strengthening the environment for IPO practices.