Online brokerage firm Derayah Financial is taking a 20% stake to Tadawul’s main market in a secondary share sale with 49.95 mn company shares up for grabs, according to an intention to float (ITF) document (pdf). The Regulation S-compliant offering makes it easier for global institutional investors to participate. The story got ink from Reuters and Bloomberg.

IN CONTEXT- The firm’s potential IPO would make it the first brokerage to list on Tadawul. Derayah lined up Capital Market Authority approval for the move back in September 2024, and is reportedly seeking a valuation of USD 2 bn for its IPO, Bloomberg reported early last week. The offering of a brokerage firm is evidence of the widening base and growing trading activity in the local capital market for investors to tap into.

A 10% clawback for retail investors: The IPO will initially be limited to institutional investors. If there is sufficient demand, retail investors will be able to subscribe to some 10% of the offering. The clawback mechanism strikes a balance between institutional investors, who often drive the price discovery process during book-building, and individual investors, who are crucial for broader market participation and liquidity. Institutional investors have a minimum subscription limit of 100k shares, and a maximum of about 12.48 mn shares, while a retail investor can subscribe to anything between 10 and 250k shares.

This is a secondary offering, meaning selling shareholders will take home all of the proceeds from the sale — after covering IPO-related expenses valued at SAR 51 mn. They will be subject to a lock-up period of 24-months from the first day of trading, during which they will not be able to execute any transactions on their shares.

What’s next? While the IPO is pending regulatory approvals, the company is reportedly going to announce its price range on 2 February, Bloomberg reports, citing transaction terms it has seen. Derayah has actively courted a diverse group of institutional investors ahead of its IPO, and expects to rake in interest from both local and international players, the group’s CEO Mohammed AlShammasi told Bloomberg News. The offering will run from 20-22 February, with final allocation on 27 February.

Post-IPO structure: Substantial shareholders will see their combined ownership diluted to 60.5% from 75.5%. The company’s largest three shareholders will see the following changes: Taha Abdullah Al-Kuwaiz will sell down his 24.2% stake to 19.3%, Abdulaziz Ibrahim AlJammaz & Brothers’ ownership will be reduced to 7.6% from 9.5%, and Sanad Investment will lower its holding from 9.3% to 7.4%.

Derayah’s financials + performance: The firm claims to hold a 14% share in the local online brokerage market. Its dividend distribution ratio in 2023 stood at 69%, up from 15% in 2020. It also logged SAR 228 mn in net income in 1H 2024, up 70% compared to 1H 2023. Derayah also has a debt-free, cash-rich balance sheet that sets it up for future growth. Derayah’s assets under management (AUM) came in at SAR 15.1 bn as of June 2024.

… and a strong presence in the IPO scene: Derayah acted as a receiving agent in some of the Kingdom’s heftiest IPOs of 2024, including beauty retailer's Nice One’s SAR 908 mn main market listing, along with some Nomu IPOs including Digital Research Company, Jana Medical, Sama Water, Shmoh Almadi, AlBattalFactory for Chemical Industries, and Arabica Star, among others. It also served as the lead manager in Multi Business Group’s Nomu IPO.

ADVISORS- Our friends at HSBC Saudi Arabia are quarterbacking the transaction as the sole lead financial advisor, bookrunner, global coordinator, and lead manager, with Baker McKenzie acting for HSBC as the sole underwriter. Receiving agents include Derayah Financial Company, Alinma Investment, Al-Istithmar Capital, Aljazira Capital, Alkhabeer Capital, Al Rajhi Capital, ANB Capital, BSF Capital, GIB Capital, Riyad Capital, SAB Invest, Sahm Capital, SNB Capital, and Yaqeen Capital.

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