CMA announces secondary offering regulation

Logo of Capital Market Authority (CMA)

The Capital Market Authority (CMA) proposed a regulatory framework draft for secondary offerings to enhance the benefits of the process.

Secondary offerings allow existing shareholders to partially or completely sell their shares in a listed company in the capital market through an offering process, CMA said in a statement.

Secondary offerings are a key contributor to promoting the Saudi market in emerging market indices, such as (MSCI, FTSE Russell, S&P), as they pave the way for increasing the number of tradable shares.

One of the direct positives of the secondary offering process is the high level of transparency, which enhances the security pricing efficiency.

They also contribute to improving the attractiveness and liquidity of the Saudi financial market, increasing the investor base, and enhancing the market stability and efficiency by promoting institutional investment, in addition to increasing the investor diversity.

The Saudi market witnessed the first secondary public offering process in 2021, when the Public Investment Fund (selling shareholder) offered 6% of its shares in telecom firm stc, as the proportion of the company’s freehold shares in the market rose to 29.8%.

According to the draft issued by the CMA, a shareholder intending to offer their shares in a listed company through a secondary offering must appoint a CMA-authorized financial advisor, who needs to notify the CMA at least 15 days prior to the proposed offering date, in addition to regulating disclosure requirements.

Furthermore, the proposed draft outlines the provisions for applying the book building process to determine the final offering price, the allocation of shares, and the price stabilization mechanism.

The available public offerings will now follow one of the four paths – one primary (the initial offering for public subscription) and three secondary.

Secondary paths include priority rights offering, share issue with the suspension of priority rights, and secondary offering that does not result in an increase in the number of issuer’s shares.

CMA seeks public input on regulating secondary offerings