The Capital Market Authority (the CMA) approved on 3 March 2022CE amendments to the Rules onthe Offer of Securities and Continuing Obligations (the ROSCOs).The amendments to the ROSCOs include the introduction of a new structure for listed companies to increase their capital while suspending the preemptive right of shareholders to subscribe to such capital.
New Capital Increase Structure
The new structure allows listedcompanies to issue new cash shares while suspending the preemptive rightfor shareholders. This option existed in the Companies Law for joint stockcompanies, including listed companies. However, the CMA rules did not regulatethe process and requirements that need to be satisfied for listed companies to utilizethis option.
This new structure is not a rights issue (i.e., no tradeable ‘rights’ will be issued), but it rather allows listed companies to directly issue and offer new cash shares to one or more investors(e.g., a strategic investor).
The new shares, however, can only be offered to institutional and qualified investors, as specifically defined under the CMA rules. Although this offer can only be directed to specific categories of investors, by looking at the CMA’s definition of both categories; such definition is wide and flexible and still grants listed companies a wide pool of investors to target. We anticipate that this will allow listed companies to seek strategic buyers of their shares.
The process and requirements for this new capital increase structure is very similar to a rights issue offering, subject to the following key distinctions:
- The issuance must not exceed 15% of the issuer’s capital. The CMA mentioned that it continues to study this percentage, and as such the CMA might increase it in the future.
- The issuance requires a prospectus in accordance with the requirements of Annex 10(a) of the ROSCOs. The requirements of the prospectus are similar to (but generally less stringent than) a rights issue prospectus.
- There is a 6-month statutory lock-up period on the owners of the new shares, which signals that the CMA intends for this to be a strategic investment option.
- The issuance does not need to be underwritten, which is a requirement for a rights issue offering. The ROSCOs also contemplate a scenario where the offer does not successfully complete, in which case the issuer and financial adviser may extend the offer period and investors can withdraw or amend their subscriptions.
The process for the new capital increase option is granted to companies listed on the main market as well as on the parallel market (Nomu).
These amendments come as part of the CMA’s efforts to enhance the Saudi Arabian capital markets for issuers and investors, and to provide better access to capital for companies.
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