Saudi Arabia's Capital Market Authority (CMA) has approved new regulatory provisions aimed at improving initial public offering (IPO) practices, tightening book-building requirements, strengthening underwriters' responsibilities and requiring companies to disclose forward-looking financial projections. The measures are designed to improve the efficiency of IPOs and enhance the reliability of information available to investors. Under the new provisions, underwriting agreements must be signed and become effective before the book-building process begins. Underwriters' commitment to purchase all shares offered must also take effect at the start of the process, reinforcing their responsibility to cover the offering even when investor demand is insufficient. This means that an underwriter, typically an investment bank responsible for arranging and marketing an offering, will no longer be limited to managing the process and attracting investors. Instead, it will be obligated to purchase all shares offered in accordance with the underwriting agreement. The CMA also clarified that if an underwriter's acquisition of the offered shares results in a breach of the listing requirements stipulated in the Listing Rules, the issuer's shares will not be listed. The underwriter will nevertheless remain obligated to purchase all offered shares, while the underwriting agreement may include a mechanism for disposing of those shares. Measures to Prevent Inflated Subscription Orders As part of the book-building process, the CMA introduced additional requirements to verify that orders submitted by participating investment institutions reflect their actual available liquidity, limiting financial solvency assessments to cash and cash equivalents. The authority also stipulated that orders must constitute binding payment commitments, with payment due no later than the subscription payment deadline specified in the prospectus. These requirements aim to curb orders that exceed investors' actual financial capacity. Large orders may indicate strong demand for an offering, but they do not necessarily reflect available liquidity or a genuine ability to pay. The measures are expected to improve the credibility of reported subscription coverage levels by aligning them more closely with actual demand for the offered shares, supporting more efficient pricing and more accurate assessments of investor appetite. Mandatory Disclosure of Financial Projections The amendments also strengthen disclosure requirements by obligating issuers to include forward-looking financial projections in their prospectuses and registration documents. These projections must include financial performance indicators covering the period following the most recently reported financial period and at least the subsequent fiscal year. The CMA stipulated that projections must be clear, not misleading, and based on reasonable and measurable assumptions. Issuers must also disclose the methodology used to prepare them, along with material assumptions, risks and factors that could affect their realization. These requirements will give investors insight into companies' expectations for future financial performance rather than requiring them to rely exclusively on historical results when evaluating whether to subscribe to an IPO. The provisions also emphasize that forward-looking projections do not guarantee that the stated results will be achieved. The CMA has further strengthened the responsibilities of financial advisers by requiring them to exercise appropriate professional due diligence when advising issuers on their financial projections and to form a reasonable opinion on those projections. This is intended to increase professional scrutiny of information provided to investors. Enhancing IPO Market Efficiency The CMA published the draft regulatory provisions on September 22, 2026, through the Istitlaa public consultation platform and its website for a 30-calendar-day consultation period to gather feedback from the public and government entities. The approved provisions will take effect on the date of their publication.
