The Capital Market Authority (CMA) of the Kingdom of Saudi Arabia (KSA) has approved new regulations for Saudi and for Gulf Cooperative Council (GCC) incorporated joint stock companies (JSC) to list on the Kingdom’s new secondary securities market, the Parallel Market.
Akin to the UK’s Alternative Investment Market (AIM) market, the Parallel Market allows issuers (which can include SMEs) to seek public funding sources, and yet not have to comply with the more onerous listing requirements for the main market on the Saudi stock exchange (Tadawul).
Furthermore, not only UAE joint stock companies (with majority GCC nationals) may list on this exchange, but also all UAE incorporated companies and UAE listed funds can invest in those listed on this KSA secondary exchange. This also applies to those from other GCC states as well.
The Parallel Market Listing Rules (the Rules), as issued by the board of the CMA pursuant to its Resolution Number 3-151-2016, dated 22/3/1438H (corresponding to 21/12/2016G), allows Qualified Investors (including Saudi Investment Funds, Qualified Foreign Investors and GCC incorporated companies and funds), to invest in JSC issuers that list on the Parallel Market. These Rules are one of several measures the Kingdom has recently issued in line with its Saudi Vision 2030 to diversify away from its reliance on oil revenue.
Consisting of 29 articles, which include the conditions for registration and listing, the Rules require, among others, that Parallel Market issuers have a minimum of:
- 50 shareholders, if total market value of all listed shares are more than Saudi Riyals 40 million (USD 10.7m);
- 35 shareholders, if total market value of all listed shares less than Saudi Riyals 40 million (USD 10.7m);
- 20% publicly listed shares;
- an expected aggregate market value of listed shares of not less than Saudi Riyals 10 million (USD 2.7m);
- one financial year in operation, either by itself or through one of its subsidiaries; and
- one year of audited financials.
In comparison, the main market requires a minimum of 200 shareholders, 30% public ownership, and aggregate market value of listed shares of Saudi Riyals 100 million (USD 27.7m).
For ease, the Corporate Governance Regulations will not be enforced on companies listed on the Parallel Market. Issuers’ draft Prospectus or Shareholders’ Circular (as applicable) must be issued in Arabic. The board of the CMA also updated the Offer of Securities Regulations to include provisions related to offering shares in the Parallel Market. The Rules are effective from the date of their publication.