Introduction: A strategic step towards developing the financial market
The Saudi Stock Exchange (Tadawul), in cooperation with the Capital Market Authority (CMA), announced a historic step: the CMA Board's approval of the regulatory framework for listing Special Purpose Vehicles (SPACs) on the parallel market, Nomu. This decision represents a significant shift in the Saudi investment environment, as the amended rules and new glossary will come into effect immediately upon official publication, opening new horizons for both investors and companies.
General context and historical background of SPACs
Special purpose acquisition companies (SPACs), often referred to as “blank check companies,” are entities established without actual business operations to raise capital through an initial public offering (IPO). Their purpose is to acquire or merge with an existing private company, transforming it into a publicly traded entity. These companies experienced a surge in global markets, particularly on Wall Street during 2020 and 2021, as a faster and more flexible alternative to traditional IPOs. In line with Saudi Arabia’s Vision 2030 and the Financial Sector Development Program, the Kingdom aims to keep pace with these global trends to deepen its financial market and provide innovative financing channels that meet investors’ aspirations.
The importance of the event and its expected impact locally and regionally
Domestically, these regulatory amendments aim to diversify available investment products and incentivize private sector companies to list on the parallel market, Nomu. This will meet growing financing needs, increase the number of initial public offerings (IPOs), and boost liquidity. These rules also provide investors with an exceptional opportunity to access unlisted companies that were previously difficult to invest in directly. Regionally and internationally, this move enhances the competitiveness of the Saudi financial market, making it an attractive destination for foreign capital seeking flexible investment opportunities protected by robust governance rules, thus solidifying the Kingdom's position as a leading financial center in the Middle East.
Listing requirements and protection of investor rights
The Capital Market Authority (CMA) has established precise regulations to ensure the protection of investors' rights. Among the most prominent of these conditions is that the company be established by a sponsor and that its capital after the initial public offering (IPO) not fall below SAR 100 million, thus ensuring market efficiency and attractiveness. The regulations also allow shareholders the option to redeem their shares in exchange for a financial payment from the escrow account, particularly if they reject the proposed acquisition deal during the voting process.
To enhance governance and prevent conflicts of interest, the sponsor or any investment fund it manages must not hold any direct or indirect shares in the target company. Furthermore, the target company's value must represent at least 80% of the funds deposited in the escrow account, and shareholders of the SPAC must retain at least 30% ownership of the target company's shares after the transaction is completed.
The strict timetable for completing deals
To ensure seriousness, speed of completion, and to protect shareholders' funds from being frozen, regulations require special purpose acquisition companies to finalize their merger or acquisition within a maximum of 24 months from the date of listing on the Nomu market. If additional time is required, this period can be extended by an additional 12 months, subject to the approval of an extraordinary general assembly. To ensure integrity, the sponsor and its affiliates are prohibited from voting on the extension resolution, and the Capital Market Authority must be notified of all steps taken.
