During the forum of Listing in the Capital Market:
Al-Quwais: We are working on developing the disclosure of listed companies and governance systems to ensure their sustainability.
Al-Khalidi: 130 thousand Saudi companies registered their capital of about 900 billion riyals, the majority of which are not listed.
Almadi: The Authority is in the process of announcing the application of the model (market maker) mid of the current year.
Asharqia Chamber of Commerce and Industry in cooperation with the Capital Market Company (Tadawul) launched The Listing on the Capital Market Forum on Sunday 6 May 2018. During this forum, the Chairman of the Capital Market Authority (CMA), Mohammed bin Abdullah Al-Quwaiz, said the financial market rewards merit and punishes default without looking for the size of the company or its age or past record. The introduction and listing of any company, the associated disclosure and governance and the separation of ownership and management are all to fortify the company from the effects of the partners' differences- "it happens more than we expect"-disrupting the business of companies and undermine its activity.
Al-Quwaiz added that the company's inclusion in the financial market allows it to raise the ceiling of its ambitions. The company with a successful business model and the outstanding management team is no longer restricts its internal financial resources from targeting the highest rates of growth and expansion. He pointed out that the Capital Market Authority, at the end of last year, updated the regulations regarding the listing and listing of securities, as its provisions became effective at the beginning of last month.
Quantum leap
Al-Quweiz emphasized that these updated regulations are a qualitative leap of facilitation and simplification, compared to the provisions that were applied in the past. Many of the requirements, which were an obstacle to exporters, were canceled or modified such as the requirement for the independence of source advisers, the requirement to provide the source of the market research report, the requirement to provide the issuer for the documents of all its subsidiaries, the requirement to provide the source of the Working Capital Report, and other updates that reduce the burden on any company that is willing to list its shares in the primary or parallel market.
He added that the new regulations have given companies and their advisors greater freedom to structure the offering, receive IPOs and allocate shares so that the company and its owners can select the most appropriate and beneficial partners and shareholders. These improvements have also contributed to reducing the time needed to prepare and study the thesis file.
Mandatory governance regulation
"In addition to increasing the number of listed companies, we seek to develop corporate disclosures and governance systems to ensure their continuity and to enable their shareholders to exercise their rights," said Al Quwais.
In this regard, the Capital Market Authority (CMA) issued last year, in cooperation with the Ministry of Commerce and Investment, the first mandatory list of corporate governance in Saudi Arabia, which imposed a number of new provisions on listed companies. This has been done in order to ensure a clear relationship between shareholders and the Board of Directors on the one hand, and between the Board of Directors and the Management Team on the other.
He pointed to the importance of the Corporate Governance Regulations for shareholders' rights, such as the right to fair treatment without discrimination and the right to have access to information in a transparent manner. As well as providing detailed provisions on the composition of the governing bodies and their committees, their terms of reference, responsibilities and meetings, and the rights and duties of their members.
He pointed to the keenness of the Authority in all its organizations to balance the interests of shareholders as well as the interests of the company. He stressed that the decision before many companies and owners is as the following: "I should be paying today a number of advisors to introduce the best practices of disclosure and governance in my company today, and then to put up and list its shares in the market. Or will I pay more money tomorrow, God forbid, to settle a dispute, or solve a problem, which may lose with my company or stumble?"
Hereafter a strategic consideration
Abdulhakim bin Hamad Al-Ammar Al-Khalidi, Chairman of Asharqia Chamber, stressed that the forum serves to emphasize the importance of listing companies in the financial market because of the positive returns not only on the listed companies, but also on the different aspects of the national economy. He argued that the determination of companies to be included in the financial market reflects - without a doubt - a strategic perspective and an investment sense and keenness of the management of the company on the continuity and growth.
Al Khalidi promises a high level of public control and available financing opportunities, among the most important advantages of listing in the financial market, as well as supporting corporate shareholders' decisions, activating governance applications, transparency and disclosure requirements. This will give companies financial and administrative stability and opportunities to enter new markets, and to increase their competitiveness with companies operating in the same activity.
Great efforts
Al-Khalidi pointed out that the Saudi market enjoys a special attractiveness. The number of licensed institutions and companies reached about 1.2 million establishments by the end of 2017 according to latest statistics. The number of existing companies with the beginning of last year was about 130 thousand companies with capital of about 900 billion riyals. While the number of listed companies is 188 companies, a weak rate and requires great efforts to maintain a great historical legacy of thousands of family businesses.
Al-Khalidi said that the forum is held at a time when the Kingdom ranks among the top 20 economies in the world and in fifth place among the top developed countries in the G20. It also ranked 17th among the largest exporters, and ranked 19th among the largest importers. All this leads us to exert more efforts to keep pace with the leadership's vision to fulfill the vision of 2030 and to fulfill the pivotal role of the private sector, while announcing historic initiatives within this vision. He is looking forward to further improving the investment environment, starting with the legal and legislative environment and through unifying government procedures in order to push companies to move towards transformation and listing policies.
Optimistic dimensions
For his part, the CEO of Tadawul, Khalid bin Abdullah Al Hassan, said that the vision of 2030 has optimistic dimensions supported by a comprehensive plan to achieve the vision, which will open wide horizons for achieving a qualitative leap in the course of the economy and development. He said that the financial market is at the heart of Vision 2030- one of the three pillars of vision-which stressed the importance of facilitating investment and trading through deepening the financial market in order to diversify the economy and launch the potential of our promising economic sectors.
Al-Hassan stressed the importance of listing for the great benefits it brings to the companies and for the benefit of the national economy in general.
He added that there is no doubt that the decision to convert the private company into a joint stock company listed in the Saudi financial market is an important step that paves the way for the company to continue to perform its activities and provide its services and ensure the transfer easily and systematically between more than one generation. In addition, it is to supporting the expansion and development decisions, stimulating initiatives, activating the company's potential, supporting and enhancing the company's business identity, and increasing confidence in the company. The listing also has many benefits at the national level in terms of enhancing the investment climate in the Kingdom, diversifying sources of income, attracting investments and localization, and a source of confidence for investors and clients.
Sukuk Market
Al-Hassan reviewed the company's initiatives to spread the culture of inclusion and ensure all its procedures. He said: "We are keen to unify efforts with all stakeholders including the Capital Market Authority by launching initiatives that raise awareness and increase the demand for listings in the market. And amend the listing rules with a view to regulating the listing of securities, facilitating the listing of companies through post-listing support in relation to the Company's obligations and other initiatives aimed at benefiting companies from the advantages of listing. As well as providing further refinement of listing steps in the financial market and regulatory rules, including a reduction in the listing schedule and the allocation of unified relationship managers to ensure that listing procedures are effectively completed.
He added that the company has also focused on deepening the sukuk and bond market. The government debt instruments have been listed and traded in the financial market with a value of over SR 200 billion. This will in turn enable better placement and listing of debt instruments for Saudi companies by creating a market curve and financing their development plans. He said, "We also reclassified sectors in the financial market to increase transparency in terms of real sector performance and global and standard comparisons, in addition to launching new instruments such as REITs."
These rapid developments have resulted in the Saudi Capital Market qualification to join the FTSE Russell Emerging Markets Index, which will significantly contribute to doubling the size of the financial market by facilitating foreign investment to suit the size of the Saudi economy, enhancing the position of the Saudi financial market regionally and globally. It is an advanced and attractive market for domestic and foreign investors that are enabling it to play a pivotal role in developing the national economy and diversifying its sources of income.
Other objectives
In the first session, the forum was moderated by the CEO of Middle East Oil Company, Mr. Saad Al Hossoush. The speakers emphasized the inclusion step to achieve transparency, separate the ownership from management and open up different investment channels for companies. They noted that listing is not an end in itself as much as a means to achieve other goals.
Nayef Al-Athel, Director of Listing Management at Saudi Stock Exchange (Tadawul), said that family businesses currently represent a major economic importance, not only in the Kingdom, but also in the Middle East. It is representing 75% of the Middle East economy and 85% of the Saudi private sector. He added, "It still supplies us with various goods and services, and has started in recent years to take its place in the world market."
He said that these companies are working to develop their financial performance. "So through taking the step of listing in the stock market, we found that most of the listed companies have developed their performance after listing, which has become an important means for family businesses to achieve its sustainability and development, as the company (any company) that offers part of their shares, would help them finance and thus achieve growth," he emphasized.
The cost of listing
He pointed out that in the light of the field visits carried out by the Capital Market Authority that they found that the most important challenges is the first step to the decision of transformation and then activate it to become a reality on the ground. In fact, since the year 2016, the Authority did more than 1000 visits to family and non-family companies. There is a fear that some companies are in the process of listing,; however, the support of the Capital Market Authority and Tadawul exist before and during the listing . Perhaps the cost of listing is one of the obstacles too, but it does not exceed 3.5%.
During his speech "the role of the financial market in the growth of family businesses," Al-Athel said that the Saudi stock market is transparent and developing rapidly. Tadawul has made a change in the way it interacts with companies that are wishing to be listed. It has continuous contact through visits and workshops. Also, an electronic platform has been developed to receive applications for listing. And the procedures are more efficient and faster than before, especially after the launch guide listing in the new solution. Accordingly, "we have - and thankfully - the largest stock market in the Middle East, the largest parallel market," he added, "so we seek to develop the market in order to serve all parties and we are developing the debt market too." The Authority is looking forward to a company listed in the stock market and debt will be offered as a share. Then, companies that compete with banks and financial institutions will appear and perhaps outperform them.
Who determines the listing's step?
Al-Athel denied that the Capital Market Authority has focused on a particular investment sector, without specifying the stage of listing; "It is not the body or the company, but rather the investor itself." This depends on the level of investment awareness, which is in constant growth.
For his part, Abdul Rahman Moulay (from Inset and Young) talked about the challenges facing family companies in listing. The most important challenges are adapting to the new situation after moving from the status of a family owned company to a joint stock company. Then, the other challenge is to challenge the variables of the market. Shareholders have certain aspirations and hopes. The company should know these aspirations and put certain jobs to achieve them with transparency. The third challenge is the challenge of commitment. The legislative institutions play a big role in controlling the joint stock companies and seek to be in the best way.
Many opportunities
Moulay said that the challenges are great and the opportunities are many if we deal with them in an organized and sound manner, then we will ensure the proper transition and achieve all their aspirations. He pointed out that the listing is not a goal, but a means of several goals; if treated under this principle and was planned on this basis, it will be a successful and sound transitional journey. The listing aims to transfer the management from generation to generation, which is supposed to be more qualified, and thus contribute to maximize the wealth of the company, and gives it more credibility in the market.
He stressed that the importance of all financial statements should be complete, and that all the internal regulations of the company would help to show them clearly and only then "we will ensure the proper performance of the company after the listing." After that, the biggest challenge is to continue the process of listing and this requires specific tools and planning time that will be overcome all obstacles, and can be controlled, especially if the availability of a qualified team.
Do not interfere in the evaluation process
The second session, which was chaired by the Director of Research and Consulting at Al-Bilad Finance Company, Turki Fadak, which entitled "Readiness of the Company". Mohammed Al-Mady, Director of M & A, CMA, spoke about the most important changes in the rules of listing and placement. He pointed out that these amendments have been linked to increased flexibility in the process of offering shares, for example, it reduced the requirements of the value of the investor portfolio qualified to about half. There have also been changes in the minimum value of the portfolio that enables the eligible investor, as well as amendments to regulatory requirements and procedural obligations. They have also been separated between the rules of placement of the CMA and the listing rules of the Tadawul Company.
Al-Mady stressed that the Capital Market Authority does not intervene in the evaluation process; its role is limited that to identifying the target groups or those who have the ability to complete the evaluation process for the company. He pointed out that the Authority is in the process of announcing the application of the model (market maker) mid-year to provide liquidity and reduce the gap between supply and demand.
Business Cycle
NCB Capital Vice President, Abdulaziz Bahiri, praised the changes in the listing and listing rules, especially the regulatory amendments that will greatly help the success of the IPO. He pointed out that there are sectors that are heavily affected by economic cycles and their volatility, which does not mean that companies should not put forward the issue. But, it is advisable to postpone the offering process in order to take into account the economic fluctuations and identify three tracks for the company's readiness to be listed. In legal terms, the company must be a closed shareholding. In terms of governance, it is necessary to have independent members of the board of directors and have a long term in the company. On the financial side, Bahiri pointed out that it could be done through the preparation of the financial statements in the period specified. He stressed that the listing offers several benefits, most notably the organization of corporate governance, especially the family, including the fact that the listing in the stock market for family companies is in the ultimate goal of owners, which achieve continuity.
The volatility of securities prices
The Director of Investment Banking Group at FALCOM, Rami Atwan, said that such meetings enrich the financial system in the Kingdom with many opinions. The amendments to the rules of placement and listing have great benefit, especially in terms of facilitating procedures and reduce the length of time and financial cost, the lower the cost in the preparation of the file whenever companies are encouraged to the listing. He pointed out that it deepened the market and works on the rehabilitation of consultants, dividing companies into two types that there are companies falling under the sectors of continuous growth and other depends on projects. He stressed that the latter is the most affected factor in the stock market because it is linked to the projects specified in the original period of time and may be time period is not enough. He emphasized that the company must have the requirements of the listing, which is the senior management and the included strategic plan. The strategic dimension is one of the most important aspects in the readiness of the company to put forward; management should be separated from ownership. Some best practices should be taken into account, such as: the availability of the management team and good human resources as well as the introduction of modern technology in management. He pointed out that the volatility of the price of the security is normal as it is subject to the process of supply and demand, as the purpose of listing is not speculation, but the long term.
Economic situation and assessment
The Head of Investment Banking at Musharaka Capital, Mazen Al-Dandashli, stressed the need for an independent legal accountant to achieve the company's readiness. He pointed out that there are two types of listing, either to sell shares or to increase capital, and the two are different in their requirements. He stressed that the sources of funding from the large benefits it offers to small and medium-sized companies are securing greater liquidity.
NCB Capital's Vice President for Investment, Sultan Al-Mousa, divided the valuation concepts into several concepts, including the concept of market value, investment value, integrative value and liquidation value. He pointed out that the evaluation process begins with the study of the economy and then the economic sector entrusted and then study the activity of the company with a financial analysis and qualitative. Al-Mousa said that methods of evaluation could be done through three approaches of income, market or cost. In the first, the discounted cash flow is calculated; the profit distribution models are determined and the remaining net income is examined. In the second, the model of comparative companies or comparative transactions would be considered. In the third, the model is the net book value and liquidation.
Al-Mousa stressed that the business cycle is essential for the company. The economic situation is the basic step in the assessment and then comes the sectorial classification. He emphasized that the company balance between environment, society and governance factors positively, which affects its shares and values.
The third and final session chaired by Dr. Jassim Al Rumaihi, Chairman of the Board of Directors of Jerab National Projects Company Limited.
During this session, Abdul Rahman Moulay, a Partner at Ernst & Young, spoke about corporate governance and legal challenges.
He explained that the concept of corporate governance is the policies and rules for the management of the company. The organization of the relationship between the stakeholders is based on the principles of accountability and control, commitment, transparency and effectiveness in order to protect the rights of stakeholders and achieve justice and competitiveness in the business environment.
The benefits of corporate governance are: improving the company's competitiveness by providing effective management guidance and supervision mechanisms, maximizing benefits to shareholders and other stakeholders, increasing market value and low cost of capital, as well as improving decision making based on the environment Strong control. Moulay said that one of the most important elements of effective governance is the election of competent and qualified board members to lead the company, attend associations, participate in its deliberations, vote on its decisions, monitor the work of the board and monitor the performance of the company. He also highlighted several mandatory committees that emphasize the effectiveness of governance. These are specialized committees (composed of non-executive members) who supervise the affairs of the Audit Committee, the Nominations Committee and the Remuneration Committee.
"The legal challenges for the listed companies are to comply with the continuous disclosure requirements required by the CMA (especially the initial and annual financial statements and the continuous disclosure of significant developments)," said White & Case partner, Sami Al-LLozi. This is considered one of the most important considerations that usually affect the decision of the owners of the company to convert them into a listed joint stock company, in addition to complying with the rules of corporate governance, especially the composition of the board committees and the appointment of independent and non-executive members of the council.
Regarding the most important requirements for continuous disclosure, he said that the company should prepare and disclose its initial financial statements, which are reviewed in accordance with the accounting standards approved by the Saudi Organization for Certified Public Accountants within 30 working days from the end of the financial period covered by those lists.
Its annual and audited financial statements must be disclosed in accordance with the accounting standards approved by the Saudi Organization for Certified Public Accountants. In addition to that the Annual Report of the Board of Directors should be disclose within a period of (3) months from the end of the annual financial period covered by those lists.
Al-Lozi stressed that the listed company must commit to disclose to the CMA and the public without delay any material developments related to its business that are not known to the public and may affect its assets, liabilities, financial position or the general course of its business or its subsidiaries. And it could reasonably lead to a change in the price of the listed securities or affect the issuer's ability to meet its debt instrument obligations.
In conclusion, Jameel Al Melhem, General Manager of Takween Company, reviewed the company's success story and its development.
At the conclusion of the forum, a workshop was held to train companies that are wishing to be listed in the financial market under the supervision of consultants and lawyers specialized in the listing process.
