Pricing review meets foreign inflow push

IPO review underway: The Capital Market Authority (CMA) reportedly contacted local and international investment banks to seek information on 2025 IPOs, especially concerning their mechanisms and how shares were allocated to investors, Asharq Business reports, citing unnamed sources. The review comes as the authority examines the sharp declines in several newly listed stocks despite strong institutional demand during their offerings.

Underperforming listings: Six of the seven companies that went public in 2025 ended their first year below their offer price, with the sample posting an average decline of around 27%. Arab Agricultural and Industrial Investment Co. (Entaj) and United Carton Industries recorded the steepest falls at around 51% and 50%, respectively, while Umm Al Qura for Development & Construction (Masa) was the only stock to trade above its IPO price, gaining 8%.

Stirring stagnant waters: The review of IPO pricing mechanisms comes as Mazen Al Sudairi takes over as chairman of the CMA’s board, amid indications that the stock market could raise its foreign ownership limit. A Morgan Stanley report expects the foreign ownership cap will be raised to 75%, a move that could attract around USD 4.3 bn in additional inflows, which could rise to USD 7.4 bn if restrictions are fully removed.

But how? “Increasing foreign ownership limits, in theory, makes no difference to the fundamental valuation of publicly listed companies, but, in practice, it allows the largest foreign institutional and corporate investors to take positions that make a more material difference to their portfolios and potentially allow them to exert control with board positions or majority control,” Hasnain Malik, head of Geopolitical Risk and Emerging Markets Equity Strategy at Tellimer, tells EnterpriseAM.

The largest stocks: Malik expects that particularly those without a long-term, majority government shareholder, of which there are a number in the banks, consumer retail, and healthcare sectors, are the most likely to benefit from much greater foreign inflows. “The low end of estimates of foreign inflows reflects the automatic allocation by passive foreign funds that will track the greater weights in equity indices like MSCI EM and FTSE EM. The high end of estimates reflects a scenario where active foreign funds that do not have to follow the indices get more enthusiastic about the Saudi investment case in general,” he says.

REMEMBER- We flagged the weaker market backdrop: TASI declined 1.95% in July to 10,590 points, while trading value dropped 20% y-o-y to SAR 86.1 bn.