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Saudi Arabia has tightened its IPO rules, requiring companies to disclose financial forecasts and investors to demonstrate they can fund their bids, as the regulator seeks to improve how new listings are priced.
The Capital Market Authority approved the changes on November 2, with the provisions taking effect upon publication. They place additional responsibilities on companies, financial advisers and underwriters during the offering process.
Companies must include forecasts in their prospectuses and registration documents covering the remainder of the latest reported financial period and at least the following financial year. They must explain the methodology, material assumptions and risks behind those projections, while financial advisers must carry out due diligence on them.
For founders and venture investors preparing an exit, that means the growth assumptions underpinning an IPO valuation will face greater public scrutiny before trading even begins.
The reforms follow scrutiny of poorly performing Saudi listings. In August, Semafor reported that the CMA was examining recent IPOs and the pricing advice banks had given issuers.
Underwriters must now sign binding agreements before book-building begins, with their obligation to purchase the offered shares taking effect from the start of that process. If their resulting ownership would breach listing requirements, the flotation can’t proceed, but they remain obliged to buy the shares.
The rules also target bids that overstate investors’ financial capacity. Orders submitted during book-building must be checked against available cash or cash equivalents and become binding for payment no later than the subscription payment deadline. The intention is to make reported demand a more reliable basis for setting the offer price.
Together, the measures should make it harder to support an ambitious valuation with either forecasts whose assumptions remain private or an order book that investors can’t afford to honour.
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