Saudi Arabia's market regulator proposes tighter rules for IPOs after market slowdown

DUBAI: Saudi Arabia’s market regulator is considering stricter guidelines for initial public offerings (IPOs) in response to a slowdown in the market, according to a recent statement. The proposed rules aim to enhance investor protections, market transparency, and shift more risk associated with IPOs to institutional investors and underwriters, as highlighted by the Capital Market Authority (CMA).

The slowdown in Saudi Arabia’s IPO market in 2026 can be attributed to a worsening Middle East conflict, leading to the cancellation of plans from Mutlaq Al-Ghowairi Contracting Company to list one of the region’s largest flotations. The draft rules stipulate that institutional investors must demonstrate their liquidity and capability to fund the IPO orders they back.

An underwriting agreement must be in place before the book-building process commences, with banks obligated to purchase all shares offered once the process begins.

Book-building, the method employed by institutional investors or underwriters to determine the security's price, involves obtaining market feedback on the draft rules until October 22. The CMA also recommends mandatory disclosure of forward-looking statements, forecasts, and financial performance indicators. Despite these measures, equity issuance in the Middle East and Africa reached $2.1 billion in the first half of the year, marking a 71% decline compared to the previous year, the lowest since 2020.