On 31 December 2017, the Capital Market Authority (the "CMA") published the Rules on the Offer of Securities and Continuing Obligations ("ROSCO"), which were approved by CMA Board Resolution No. 3-123-2017 dated 9/4/1439H (corresponding to 27 December 2017). In the same Board Resolution, the CMA Board also approved the Listing Rules (the "Listing Rules") of the Saudi Stock Exchange ("Tadawul").
The ROSCO and the Listing Rules are effective as of 1 April 2018 and have replaced:
- the Offer of Securities Regulations approved by CMA Board Resolution No. 2-11-2004 dated 20/8/1425H (corresponding to 4 October 2004), as amended;
- the Listing Rules approved by CMA Board Resolution No. 3-11-2004 dated 20/8/1425H (corresponding to 4 October 2004), as amended; and
- the Parallel Market Listing Rules approved by CMA Board Resolution No. 3-151-2016 dated 22/3/1438H (corresponding to 21 December 2016).
This article sets out a high-level overview of the new legal framework governing the offering of securities in the Kingdom of Saudi Arabia (the "Kingdom").
The primary legislation regulating the offering of securities in the Kingdom is the Capital Market Law (issued by Royal Decree No. M/30 dated 2/6/1424H corresponding to 31 July 2003), under which the CMA is tasked with the implementation and enforcement of the Capital Market Law, including by way of issuing implementation regulations.
The ROSCO contains a detailed legal framework governing the offering of securities in the Kingdom and must be read in conjunction with the Listing Rules and other implementing regulations issued by the CMA such as:
- the Authorised Persons Regulations approved by CMA Board Resolution No. 1-83-2005 dated 21/05/1426H (corresponding to 28 June 2005), as amended;
- the Corporate Governance Regulations approved by CMA Board Resolution No. 8-16-2017 dated 16/5/1438H (corresponding to 13 February 2017), as amended; and
- the Instructions of Book Building Process and Allocation Method in Initial Public Offerings approved by CMA Board Resolution No. 2-94-2016 dated 15/10/1437H (corresponding to 20 July 2016), as amended (the "Book Building Rules").
What Constitutes an Offering of Securities?
Securities are defined broadly and include:1
- debt instruments;
- contracts for differences;
- long-term insurance contracts; and
- any right to or interest in any of the foregoing.
Article 1(b) of the ROSCO states that offering securities means:
- issuing securities;
- inviting the public to subscribe in securities or the direct or indirect marketing of securities; or
- any statement, announcement or communication that has the effect of selling, issuing or offering securities.
Preliminary negotiations or contracts entered into with or among underwriters do not constitute an offering of securities for the purposes of the ROSCO. In addition, the ROSCO do not apply to the offering of units in investment funds. The latter are regulated by:
- the Investment Funds Regulations approved by CMA Board Resolution No. 1-219-2006 dated 3/12/1427H (corresponding to 24 December 2006), as amended;
- the Real Estate Investment Funds Regulations approved by CMA Board Resolution No. 1-193-2006 dated 19/6/1427 (corresponding to 15 July 2006); and
- the Real Estate Investment Traded Funds Instructions approved by CMA Board Resolution No. 6-130-2016 dated 23/1/1438H (corresponding to 24 October 2016).
Types of Offers of Securities
Securities may be offered in the Kingdom by way of:
- an exempt offer;
- a private placement offer;
- a public offer; or
- a Parallel Market Offer.
Article 6 of the ROSCO lists eight cases that qualify as exempt offers, meaning such cases are not subject to the requirements of the ROSCO (e.g., approval of the CMA or publication of a prospectus). The only legal requirement is for the offeror or the authorised person2 (if the offer is carried out through an authorised person), when making an exempt offer, to notify the CMA by providing the information set out in Articles 6(b)3 and 6(c)4 of the ROSCO.
The following constitute exempt offers:
- where the securities are issued by the government of the Kingdom;
- offers of contractually based securities;5
- where an issuer whose shares are not listed on Tadawul increases its capital by offering new shares to existing shareholders;
- where the offeree is an affiliate of the issuer, unless it is an offer of a class of shares that is listed on Tadawul;
- where all of the offerees are employees of the issuer or of any of its affiliates, unless it is an offer of a class of shares that is listed on Tadawul;6
- offers in an insolvency situation where shares are offered to creditors;
- where an issuer whose shares are not listed on Tadawul increases its capital by way of debt conversion;7 and
- where the subscription is limited to sophisticated investors8 and the total value of the securities being offered is less than SAR 10 million or an equivalent amount, provided that the offer is not made more than once during the twelve months after the completion of the offer.
Private Placement Offer
An offer of securities is a private placement where it is not an exempt offer, public offer or a Parallel Market Offer and falls under any of the following categories:
- the subscription is restricted to sophisticated investors9; or
- the offer is a limited offer.
An offer of securities is a limited offer if the subscription is limited to no more than 100 offerees (excluding sophisticated investors) and the minimum amount payable per offeree is not less than SAR 1 million or an equivalent amount in other currencies. The minimum amount payable per offeree may be less than SAR 1 million where the total value for the offered securities does not exceed SAR 5 million.
The ROSCO requires that any private placement must be made through an authorised person licensed to carry out arranging activity and the offeror notifies the CMA at least ten days prior to the proposed offer date and submits a private placement notification10 and the declarations by the offeror11 and the authorised person12 prescribed by Article 11(a)(2) of the ROSCO and copies of any offering documents to be used in the advertising the offer.
The offeror is also required to make a post-closing filing within ten days of closing of the offer period informing the CMA of the persons who have acquired the securities and the total proceeds of the offer.
1 Glossary of Defined Terms Used in the Regulation and Rules of the Capital Market Authority approved by CMA Board Resolution No. 4-11-2004 dated 20/8/1424H (corresponding to 4 October 2004), as amended.
2 A person authorised by the CMA to carry on securities business (e.g., dealing, managing, arranging, advising or custody) in the Kingdom in accordance with the Authorised Persons Regulations issued by CMA Board Resolution No. 1-83-2005 dated 21/05/1426H (corresponding to 28 June 2005), as amended. The list of the authorised persons can be found at https://cma.org.sa/en/Market/AuthorisedPersons/Pages/default.aspx
3 This includes: type of exempt offer, categories of the offerees, amount paid by each offeree category in Saudi Riyals, the start and end dates of the offering, names and nationality of the offeror, price paid for each security, type of security and total size of the offering.
4 In relation to ongoing offerings, the notification needs to state the expected date of completion of the offering.
5 These are options, futures, contracts for differences, long-term insurance contracts and any right to or interest in any of the foregoing.
6 This will cover an offering of shares pursuant to an employee share plan by a Saudi unlisted joint stock company or by a foreign listed parent company to the employees of its Saudi subsidiary.
7 This will, for example, apply to a capitalisation of a debt by a Saudi unlisted joint stock company.
8 Article 9 of the ROSCO provides that the offering of securities to the following persons will qualify as an offer of securities to sophisticated investors: (i) the Government of the Kingdom, any supranational authority recognised by the CMA, Tadawul (and any other stock exchange recognised by the CMA) or the Securities Depository Center (which is the sole entity in the Kingdom responsible for providing securities deposit, settlement, clearing and registering ownership of securities traded on Tadawul); (ii) institutions acting for their own account (institutions are defined as: (1) any company which owns, or which is a member of a group which owns, net assets of not less than SAR 10 million; (2) any unincorporated body, partnership or other organisation which has net assets of not less than SAR 10 million; and (3) any person ("A") whilst acting in the capacity of director, officer or employee of a person ("B") falling within items (1) or (2) above where A is responsible for B undertaking any securities activity); (iii) authorised persons acting for their own account; (iv) clients of an authorised person licensed to carry out management activities, provided that the offer is made to that authorised person and all relevant communications are made through the authorised person and the authorised person has been engaged on terms which enable it to make decisions concerning the acceptance of private offers of securities on the client's behalf without reference to the client; (v) registered persons (i.e., persons who are registered with the CMA to perform a registrable function (e.g., CEO, finance manager, director or senior officers/managers)) of an authorised person (if the offer was carried out through that authorised person itself); (vi) professional investors; or (vii) any other persons prescribed by the CMA. A professional investor is defined as any individual who fulfils at least one of the following conditions: (i) he/she has carried out at least 10 transactions per quarter over the last 12 months of a minimum total amount of SAR 40 million on securities markets; (ii) his/her net assets are not less than SAR 5 million; (iii) he/she works or has worked for at least three years in the financial sector in a professional position which requires knowledge of securities investment; (iv) he/she holds a professional certificate that is related to securities business and accredited by an internationally recognised entity; or (v) he/she holds the General Securities Qualification Certificate that is recognised by the CMA and has an annual income of not less than SAR 00,000 in the last two years.
9 See footnote 8 above.
10 The private placement notification must state, among others: (i) the names of the issuer and the offeror, their principal place of registration and the address of their principal place of the business; (ii) the name and address of the authorised person whom the offer is made through; (iii) the proposed start and end dates of the offer; (iv) the class of securities to be offered; (v) the offer price for each security offered in Saudi Riyals; (vi) the total size of the offer in Saudi Riyals; and (vii) the minimum amount (if any) to be paid by each offeree.
11 The offeror must submit a declaration in the form set out in Annex 3 of the ROSCO, which essentially contains the offeror's confirmation that all the relevant conditions for the intended private placement have been satisfied and that the information contained in the private placement notification and the offering documents is fair, accurate and not misleading.
12 The authorised person must submit a declaration in the form set out in Annex 4 of the ROSCO, which essentially contains the authorised person's confirmation that the offeror has satisfied all the relevant conditions for making the intended private placement and has submitted or will submit all the information and documentation required to be provided to the CMA under the OSCO in connection with the private placement.