New CMA rules would put Saudi IPO banks on the hook for unsold shares, make bidders prove they have the dry powder

Saudi’s Capital Market Authority (CMA) wants to put IPO underwriters on the hook for the whole offering: The CMA has launched consultations on a set of draft provisions rewriting IPO rules that would force the underwriting bank to sign a firm underwriting agreement before book building begins — the stage where the bank sounds out large investors to set the price — and buy any shares investors don’t take, up to the entire offering. If the shortfall leaves the issuer below listing requirements, the shares don’t list, and the underwriter buys the offering anyway.

The practice is common in the US and Europe, and it turns banks into “genuine backstops rather than facilitators of IPO demand,” giving them reason to scrutinize inflated or weakly funded bids when they carry the risk of the full book, Ubhar Capital head of research Tahir Abbas tells Bloomberg.

Two companion rule changes target the order book directly: Financial advisors would have to verify each large bid is backed by available liquidity, and orders would become binding by the subscription payment deadline. Issuers would also have to disclose at least a year of forward-looking financial forecasts, vetted by the financial advisor.

Covered books had stopped being a reliable guide to how a stock trades after the bell, with Kamco Invest’s Junaid Ansari and Abbas both flagging to us in July that post-listing performance has become the metric issuers and advisors are now watching. Only four of the 17 companies to list on Tadawul since the start of 2025 are trading above their issue price, according to Bloomberg data.

Order-book quality is one factor among several here. The market participants we've spoken with agree the mechanics need fixing. “Book building needs to be genuine price discovery rather than simply a mechanism for validating the highest achievable valuation,” EQCM founder and CEO Osama Alowedi previously told EnterpriseAM. But the drought has structural factors weighing it down too. Higher-for-longer rates have lifted the cost of equity and pushed valuations down, this year’s geopolitical volatility pushed issuers to delay rather than launch into a jittery market, and owners have been reluctant to list at the prices a bruised market will pay. Those causes sit largely outside what this draft addresses.

BACKGROUND- The draft builds on a run of CMA moves to reshape the IPO process. Earlier measures pushed issuers to reserve as much as 30% of an offering for retail investors. The consultation also comes after the regulator’s scrutiny of how 2025 listings were priced and allocated, and shortly after Mazen Al Sudairi took over as CMA chairman — a capital-markets veteran from some of the kingdom’s biggest banks.

ICYMI- Contractor Mutlaq Al Ghowairi pulled its USD 800 mn Tadawul offering in June despite institutional orders exceeding supply — the clearest recent case of covered books not translating into a live deal. The bright spot: Dar Al Balad’s May listing, 66.6x oversubscribed institutionally, popped 28% on debut.