Saudi Arabia plans IPO rule shake-up that pushes more risk onto banks

What the CMA is proposing

Saudi Arabia's market regulator wants to tighten how offerings are run and who bears the risk if demand falls short. Banks would be required to check that investor orders line up with cash that is actually on hand, a bid to cool the oversized order books that have become common.

The regulator is also proposing that underwriters pledge to buy IPO shares that investors leave on the table, potentially up to the full deal. That aligns Saudi practice more closely with markets like the US and Europe and follows several offerings pulled in recent months.

Companies would have to disclose forward-looking statements and forecasts, including performance indicators that cover at least the next year.

Why now

Saudi IPOs have brought in $144 million this year, according to Bloomberg data. Of the 17 firms that have listed on the main market since 2025, only four trade above their issue price. The broader market has also felt the strain, with the benchmark Tadawul index trimming its year-to-date gain to about 2%, and the recent escalation by the Iran-backed Houthis weighing on sentiment. The slowdown began before the regional conflict, though.

The proposals aim to tackle bloated order books that do not always translate into healthy first-day trading. Banks were examined by the regulator after several weak post-listing performances, including companies missing earnings guidance after they went public. Earlier steps included guidance to earmark up to 30 percent of shares for retail buyers, a level bankers say can drag on deals when household demand is soft, and similar worries have been voiced about encouraging sizeable allocations to mutual funds.

How banks and issuers could feel it

If book-building began under a fully underwritten setup, banks would serve as genuine guarantors instead of mere order collectors, said Tahir Abbas, who leads research at Ubhar Capital. "This should improve order book quality, as underwriters will have greater incentive to scrutinize inflated or weakly-funded bids when they carry the risk of taking the full deal," he said. He also noted that as lenders put more of their balance sheets on the line, they may become choosier on which companies list and at what price.

The CMA is taking feedback on the consultation through Oct. 22. Because it was a public holiday in Riyadh, the authority did not provide an immediate response to a request for comment.

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The bigger market picture

The consultation lands soon after Mazen Al-Sudairi became CMA chairman. His track record in capital markets at several of the kingdom's largest banks and his government ties had boosted expectations among market participants for a wider easing of rules. For now, the focus is on strengthening the IPO process.

Saudi Arabia's listings dip is part of a regional pattern. Gulf IPO volumes started fading last year and are below $1.1 billion so far this year, even trailing sub-Saharan Africa. Beyond IPO mechanics, investors are watching for updates on foreign ownership rules.

Overseas investors are currently capped at 49 percent of any Saudi company, which leaves the kingdom as the only remaining major Gulf market that still has this restriction. Morgan Stanley analysts estimate that removing the cap entirely could attract about $7.4 billion into local stocks.

What this means for your money

If these changes land, banks would act more like guarantors and less like traffic cops, which could influence which companies make it to market and how they are priced. For investors, cleaner order books and required forward-looking disclosures that span at least a year could help separate durable demand from hype.

These proposals sit alongside earlier guidance on retail and mutual fund allocations, so the IPO playbook may keep evolving while comments roll in through Oct. 22. If you are watching for new listings, expect a process that puts more weight on committed cash and clearer expectations after day one.

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