Saudi listing-rule overhaul risks stalling IPO revival, bankers warn

Summary

• Saudi Arabia's market regulator is rewriting listing rules under newly appointed chief Mazen Al-Sudairi.
• Riyadh bankers and lawyers fear the proposals delay deals already in the IPO pipeline.
• The Tadawul is down 3% since Feb. 28 as emerging markets rose 6%.

The latest

Saudi Arabia's Capital Market Authority is pushing through one of its biggest rulebook revamps since the kingdom opened its stocks to foreigners in 2015, Semafor Gulf reported. Newly appointed regulator Mazen Al-Sudairi is leading the effort, which targets listing standards rather than the foreign ownership limits investors had been waiting on. Bankers and lawyers in Riyadh told Semafor the changes could slow a market recovery instead of driving one.

Details

• The regulator: Mazen Al-Sudairi, recently appointed to lead the Capital Market Authority, is steering the overhaul, according to Semafor Gulf, which described it as one of the kingdom's largest regulatory revamps since the 2015 decision to open Saudi equities to foreign investors — a shift that moved Riyadh from shunning hot money to courting it.
• The stated aim: The proposals target listing rules with the goal of attracting mature, well-run companies to the exchange — quality over quantity, per Semafor. That marks a pivot away from the change investors had actually anticipated: promised adjustments to foreign ownership limits, which many expected to drive a recovery.
• The numbers: The Tadawul index remains down 3% since Feb. 28, while the MSCI Emerging Markets Index gained 6% over the same stretch, Semafor reported. Saudi stocks saw a multiyear bull run end in 2022, then rebounded after the Iran war broke out, outperforming regional peers on the kingdom's ability to keep exporting crude.
• The objection: Critics cited by Semafor warned that requirements such as hard underwriting, which forces banks to absorb more IPO risk, could delay transactions already in the pipeline. Those critics would not speak on the record, citing fear of reprisal.
• Who gets squeezed: Smaller banks may not be able to participate in underwriting at all under the proposed rules, according to Semafor, and even large institutions are expected to be wary of untested requirements early on. The effect would narrow the pool of arrangers available to companies seeking to list.
• The state's stake: The government needs a thriving market to offload its domestic portfolio and recycle that capital into new ventures, Semafor reported. Foreign cash drawn in after 2015 was described as essential to funding Crown Prince Mohammed bin Salman's economic transformation program.
• Still provisional: The proposals remain under consultation and could change before being finalized, according to Semafor. No timetable for a final rulebook was set out, and the regulator has not publicly addressed the underwriting concerns raised by market participants.
• Sentiment backdrop: Falling valuations, compounded by the war, have worsened sentiment and put off new listings, Semafor reported. Local investors are sitting on underperforming portfolios, the confidence problem the regulator is trying to solve.

Background

Saudi Arabia opened its stock market to direct foreign investment in 2015, a move that lifted the Tadawul's global standing and channeled outside capital into the kingdom's economic transformation push. The bull run that followed ended in 2022.

Between the lines

The dilemma Semafor identifies is structural: screening out companies not ready for public markets raises listing quality, but it also thins the pipeline at the exact moment Riyadh needs volume. With the index trailing emerging-market peers by nine percentage points since February and the state looking to sell down domestic holdings, a rulebook that slows deals works against the seller's own timetable.

What's next

Watch whether the CMA softens the hard underwriting requirement when consultation closes, whether the promised foreign ownership changes resurface, and whether any pipeline IPO prices before the new rules are finalized.

Source: Semafor Gulf