The Capital Market Authority (CMA) has put new rules in place to regulate secondary offerings on the main market, Tadawul, as well as parallel market Nomu. The public can give feedback on the new regulations (pdf) on the government’s public consultation platform until 21 December. The CMA says the rules aim to make the market for secondary share sales more transparent — and, as a result, more price efficient.

KEY COMPONENTS- Sellers will be obliged to follow specific rules on:

  • the appointment of financial advisors;
  • disclosure documents;
  • the book-building process,
  • the use of post-sale price-stabilization schemes.

CMA will have 10 days to review an intended secondary offering during which it can approve the transaction or require the financial advisor to provide additional information.

CMA can nix a sale if it thinks it is contrary to the interests of investors or would otherwise breach the Capital Markets Law.

Welcome to the wonderful world of lockups: Selling shareholders can’t sell any of their remaining shares for a period of six months following the completion of the secondary offering if the sale is on Tadawul. The lockup period lasts 12 months if it’s on Nomu.

The selling shareholder has to appoint a financial advisor, and that advisor will have to give the regulator notice of at least of 15 days ahead of the proposed date of the secondary offering and submit the full package of documentation with that notice.

The offering document needs to be available to the public on both the financial advisor’s website and the Tadawul’s at least five days prior to the start of the offering.

SOUND SMART- Uhm, Enterprise? What’s a secondary sale? It’s a way for a publicly traded company to manage ownership stakes, try to drive more trading in its stock if it is “illiquid,” or to try to raise capital for reinvestment in the company or to pay down debt. In a secondary sale, the company and one or more of its shareholders (usually with large positions) want to sell a block of existing shares to the public. It doesn’t involve the creation of new shares after a vote of shareholders, but the selling of existing shares by current shareholders such as a founding family or a private equity firm.

Coverage: The news got ink in Bloomberg.

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