Saudi Arabia: New Saudi Qualified Foreign Investor Rules And IPO Book Building Instructions Approved

This year has witnessed remarkable legal developments in the capital markets landscape of the Kingdom of Saudi Arabia. In particular, the Capital Market Authority of the Kingdom ("CMA") approved the amended Rules for Qualified Foreign Financial Institutions Investment in Listed Securities (the "QFI Rules"), which came into effect on 4 September 2016. Another significant legal development is the CMA's approval of the Instructions of Book Building Process and Allocation Method in Initial Public Offerings (the "Book Building Instructions"), which will become effective on 1 January 2017. These legal developments are part of the Kingdom's ongoing efforts to grow its capital market, which has the largest market capitalisation in the MENA region, by facilitating foreign investment.

QFI Regime

A qualified foreign investor ("QFI") is a foreign investor that is registered with the CMA and permitted to invest directly in securities listed on the Saudi Stock Exchange (Tadawul). The QFI Rules set out the procedures, requirements and conditions for the registration of QFIs with the CMA, as well as the obligations of QFIs and of CMA authorised persons in this regard.

Until the introduction of the QFI regime in June 2015, foreign investors could not invest directly in Tadawul-listed securities and instead were only able to invest indirectly through Swap Agreements with CMA-authorised persons. A Swap Agreement, which creates a type of nominee relationship between the swap purchaser (foreign investor) as principal and the CMA licensed swap provider as nominee, provides foreign investors with an ability to obtain economic exposure to an underlying listed security, without legal ownership.

Key Highlights of the QFI Regime

  • QFIs may invest in all securities listed on Tadawul, including equities (including in IPOs), debt instruments and exchange traded funds (ETFs).
  • As the legal owner of the security, a QFI is entitled to exercise all rights attached thereto, including, for example, voting on shareholder matters and exercising pre-emptive subscription rights.
  • Banks, brokerage and securities firms, insurance companies, investment funds, governments and government-related entities are eligible to apply for registration as a QFI. Government related entities are defined in the QFI Rules as central banks and investment funds (such as sovereign funds, pension and endowment funds) that are fully owned, directly or indirectly, by a government entity. In addition, the CMA has discretion to register other financial institutions that it considers eligible for QFI registration.
  • Applicants for QFI registration must satisfy the following conditions:
  • Except for investment funds, governments and government-related entities, applicants must have five years of experience in securities business and investment.
  • Banks, brokerage and securities firms and insurance companies must be licensed or otherwise subject to regulatory oversight by a regulatory authority in a jurisdiction that applies regulatory and monitoring standards equivalent to those of the CMA or acceptable to it.
  • Except for governments and government-related entities, applicants must have assets under management of at least SAR 3.75 billion (US$ 1 billion).
  • Each application for QFI registration is reviewed by an assessing authorised person ("AAP"), who is a CMA- authorised person holding a custody or dealing licence. Following the AAP's assessment of a QFI application, the AAP must notify the CMA whether the application is accepted. Applications that are approved by an AAP are then subject to a CMA review and approval process. The overall CMA review process takes up to 5 days from the CMA's receipt of all required information. The QFI Rules impose the following investment restrictions and limits:

Book Building Instructions

  • A QFI may not own more than 10% of the shares or convertible debt instruments of any Tadawul-listed issuer.
  • All foreign investors (in all categories, whether resident or non-resident, including strategic foreign investors and those investing through the Swap Agreements Framework) cannot own in aggregate more than 49% of the shares or convertible debt instruments of any Tadawul-listed issuer. QFI investments are also subject to:
  • other legislative limitations on foreign ownership in joint stock companies;
  •  any instructions or limitations imposed by the supervisory or regulatory authority with jurisdiction over the issuer; and
  • any limitations set forth in the constitutional documents of the issuer.
  • QFIs are subject to the ongoing disclosure obligations, including the notification to its AAP of certain events listed in Annex 3.1 of the QFI Rules, e.g., insolvency or restructuring of the QFI or breach of the investment limits.

The new Book Building Instructions

will come into force on 1 January 2017. These new rules are intended to regulate the book building process and allocation methods used in initial public offerings. In particular, the Book Building Instructions deal with how the IPO price is set and prescribe a priority waterfall for allocations.

The book building process is run by the financial adviser of the issuer, who must be a CMA authorised person. The financial adviser's role is akin to the role played by a sponsor on listings on the Premium segment of Main Market of the London Stock Exchange.

The following investors are eligible to participate as bidders in the book building process via a bid process organised by the financial adviser:

  • Saudi public funds that invest in securities listed on Tadawul;
  • CMA authorised persons that are licensed to deal as principal;
  • Companies listed on Tadawul;
  • Banks and insurance companies listed on Tadawul;
  • Saudi Government entities and Government owned companies;
  • Unlisted Saudi companies provided they have an equity capital of not less than SAR 50 million and an active portfolio; and
  • QFIs.

Pre-Marketing and Other Information Disclosure

The new Book Building Instructions allow financial advisers to test investor appetite prior to obtaining the CMA's approval of the prospectus, but may only disclose information about the issuer and its financial statements on a no- name basis.

After the CMA's approval of the prospectus, but prior to the start of the book building process, the issuer and its financial adviser may disclose information about the issuer and its financial statements to CMA authorised persons, which provides helpful investor feedback in advance of the formal book building and price range setting processes.

Duration of Book Building Process and Price Range

  • IPO shares can be offered to institutional investors only during the book building process.
  • The bookbuilding process begins once the CMA approves a prospectus.
  • The duration of the book building process cannot exceed 14 calendar days, during which time the issuer and financial adviser, with the assistance of the underwriters, are expected to set a price range, conduct investor roadshows, complete the bookbuilding and set the IPO price.
  • Consistent with current practice, the CMA does not participate in the determination of the price range or the final price to investors.
  • The difference between the top and bottom of the price range cannot exceed 20% of the minimum price.
  • Bidding on prices outside the price range is allowed but must not exceed 20% of the minimum or maximum price in the price range.
  • The book building period and the price range are announced by the financial adviser, and this information must be available on the websites of the issuer and the financial adviser.

Institutional and Retail Offering Allocations

The CMA approved prospectus will set out the proportions of the overall transaction that are reserved for retail and institutional investors, respectively. Customary market practice has been that the majority of shares available for sale are allocated to institutional investors and we understand that the CMA intends to increase the allocations to institutional investors going forward. Out of the total institutional investor allocation for each transaction, a certain percentage is reserved for Saudi mutual funds in accordance with the formula set out in the Book Building Instructions. The IPO prospectus will set out the percentage of the offering reserved for Saudi mutual funds. Under the current practice, at least 90% of the institutional investor allocation goes to Saudi mutual funds.

Before any shares are offered to retail investors, the offer price is set by reference to the institutional bookbuilding process. Retail investors may participate in the IPO at the offer price.

To offer the IPO shares to retail subscribers the entire IPO offering must first be entirely covered by bids accepted from institutional investors. It should be noted that price stabilisation and market making, which are widely used in Europe and the US to help stabilise the aftermarket share price and maintain the liquidity in the issuer's shares, are not permitted in Saudi Arabia currently.

Changing the Price Range

The financial adviser may, after obtaining consent from the issuer and the underwriters, change the price range, if the offered shares were fully covered at the highest price in the price range or any price above that price or if the offered shares were not fully covered. Bidding outside the revised price range is not permitted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions