Special purpose companies proposed to boost Saudi IPOs

Consultations to run for 30 days

Launch would be on Nomu

Consultations on introducing special purpose acquisition companies to the Saudi stock exchange’s junior market in an effort to encourage initial public offerings and listings have been announced by Saudi Arabia’s Capital Markets Authority regulator.

A special purpose acquisition company, or Spac, is formed to raise money through an IPO, with the funds then used to buy another existing company. 

At its IPO, a Spac does not have business operations or necessarily stated targets for acquisition.

“The draft proposed by CMA will enable qualified investors in the parallel market to invest in unlisted companies that were previously difficult to access directly,” the CMA said in an announcement this week.

The consultation period will run for 30 days from the announcement.

The Saudi exchange, or Tadawul, operates two markets, the main market and the parallel market, or junior market, which is called Nomu.

According to the CMA proposal, Spacs in Saudi Arabia must complete their acquisition or merger within 24 months of listing, extendable for a further 12 months with approval.

Spacs must adopt the structure of a joint stock company and offer shares redeemable at the discretion of shareholders.

If approved, these would be the first Spacs in Saudi Arabia, after more than two years of discussions.

Muhammad Fawad Khan, an equity research analyst at Alinma Capital in the Saudi capital Riyadh, said: “Spacs will need to ensure proper marketing of their target before or after acquisition, to increase the investors’ knowledge about the company.”

While Spacs provide a simpler alternative to existing companies doing IPOs, the information available is more limited, with investors often not even knowing the identity of the company that the Spac may buy.

This is the second proposal put forward by the CMA in less than a month to ease restrictions and boost activity on the Nomu. Last month, the regulator opened consultations for reducing investor qualifications.

Investor interest

Reporting requirements are already lower on the Nomu compared with the main market, the largest Arab stock market, to account for the more limited resources of smaller companies.

Recent Saudi Arabian IPOs have attracted considerable investor interest. Three have been completed so far this year: Derayah Financial, Entaj and Umm al Qura, raising more than $1 billion between them. 

Each company’s shares rose the maximum 30 percent allowed on the first day of trading. 

This week’s CMA proposal “could be a stepping stone to introducing Spacs onto the main market”, Khan said.

Sharp falls in global markets after last week’s announcements of increased US tariffs and a subsequent slump in oil prices have threatened the future of Gulf IPOs.

Both Derayah Financial and Entaj had their initial share price gains wiped out and are now trading below their original IPO price.

After a period of relative obscurity around the world, Spacs were most popular during the lead-up to the 2008 financial crisis. They had a resurgence in the early 2020s, with a record number of Spac IPOs and acquisitions, before falling off in the mid-2020s.

Spacs gained mainstream attention with the highly publicised 2024 acquisition that took public Donald Trump’s media company, Trump Media & Technology Group. 

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