Interference with offer prices limits IPOs; capital hikes decided by shareholders: Elkuwaiz

Mohammed Elkuwaiz, Chairman of Capital Market Authority

The Capital Market Authority's (CMA) previous move to set IPO prices and issue premiums weakened appetite for listings, with companies refusing to go public at a price they deem lower than fair value, the market regulator’s Chairman Mohammed Elkuwaiz told Rotana Khalejia in an interview.

Historically, this is one of the reasons for fewer public offerings on the Saudi market, he added.

Elkuwaiz noted that the companies which face a decline in shares price below the subscription price immediately after offering are still a minority, as they used to represent nearly 20% of the companies offered.

Regarding companies with accumulated losses, the Chairman stated that the decision is in the hands of shareholders through supporting these companies by increasing (and reducing) their capital, or leaving them to face another battle. Preventing companies from increasing their capital, in general, by the regulatory authority is illogical as long as their shareholders seek to do so. 

Read also: CMA has 80 listing applications: Elkuwaiz

The growth in capital hikes value from SAR 500 million in 2019 to about SAR 5 or 6 billion in 2020 was due to the repercussions of the COVID-19 pandemic, when business, revenues, profits and even financing stopped. Accordingly, companies resorted to shareholders, which was an advantage for the capital market, and a tool to attract other companies, he added.

Elkuwaiz also noted that Saudi Arabia, which is the world’s ninth largest market, is a large market to be controlled by any market maker. No one can boost the market or weigh on it independently and against investors’ will. 

However, the CMA Chairman stated that the market maker in the official and technical concept that was recently approved is a liquidity provider. It is an entity that sets the best demand and offer, takes advantage of margin, and moves in line with the market trend. 

He pointed out that it is not the duty of the CMA to shore up and dampen the market.

Concerning launching and licensing additional markets other than Tadawul, Elkuwaiz said this is possible according to law. The CMA focuses on entities that have added value in an investment class other than stocks, such as the commodities or debt market, etc. Opening a second stock market will disperse liquidity. “We rather aim to introduce new products,” he concluded.