According to data from Refinitiv, Saudi Arabia raised $2.8 billion through IPOs in 2021, a 91% increase from the previous year. This was largely driven by the successful listing of Saudi Aramco in 2019, which raised $25.6 billion, making it the largest IPO in history. However, even if we exclude the Aramco listing, the trend remains positive, with the number of IPOs increasing year-on-year, and a strong pipeline of companies looking to go public in the coming months.
One of the main factors driving this surge in IPO activity is the Saudi government's efforts to diversify the economy and reduce its reliance on oil. The Vision 2030 plan, which was launched in 2016, aims to transform the Saudi economy by developing new industries and creating jobs for its citizens. The plan includes a number of initiatives to support the growth of the private sector, including the development of a robust capital market that can provide funding for local businesses.
Another factor driving the increase in IPO activity is the high liquidity in the Saudi stock market. The Tadawul All Share Index (TASI) has been performing well, which has created a favorable environment for companies to go public and raise capital from investors.
In terms of sectors, the majority of IPOs in Saudi Arabia have historically been in the financial services, healthcare, and real estate sectors. However, there is a growing interest in new sectors, such as technology and renewable energy, which are expected to play a key role in the country's economic diversification plans.
In this article, we will discuss the role of finance functions when considering an IPO in Saudi Arabia.
Financial Due Diligence
Before deciding to go public, a company must conduct thorough financial due diligence to ensure that all financial information is accurate and up-to-date. The finance function plays a critical role in this process, which involves reviewing financial statements, analyzing key financial metrics, and identifying any potential risks or liabilities that could impact the IPO.
Once a company decides to go public, it must comply with a range of financial reporting requirements. The finance function is responsible for ensuring that all financial statements are prepared in accordance with the accounting standards set by the Capital Market Authority (CMA) in Saudi Arabia. This includes providing regular updates on the company’s financial performance, as well as ensuring that all financial disclosures are accurate and transparent.
Another key consideration when preparing for an IPO is the company’s capital structure. The finance function plays a critical role in determining the optimal capital structure, which involves assessing the company’s debt-to-equity ratio, its funding requirements, and its overall financial goals. The finance function will work closely with investment banks and other advisors to determine the best approach to raising capital through the IPO.
Determining the appropriate valuation of a company is another critical aspect of preparing for an IPO. The finance function plays a key role in this process, which involves analyzing the company’s financial performance, assessing the market conditions, and identifying comparable companies. Based on this analysis, the finance function will work with investment banks and other advisors to determine the most appropriate valuation for the company.
Finally, the finance function plays a critical role in ensuring that the company complies with all relevant regulations and laws. This includes ensuring that all financial disclosures are accurate and transparent and that the company adheres to all reporting requirements set by the CMA in Saudi Arabia. The finance function will also work closely with legal advisors to ensure that the company complies with all legal and regulatory requirements throughout the IPO process.
In summary, the IPO market in Saudi Arabia is showing strong growth driven by government diversification plans, market liquidity, and interest in new sectors. The trend is expected to continue with a robust pipeline of companies planning to go public. The finance function plays a critical role in preparing a company for an IPO by conducting financial due diligence, determining optimal capital structure and valuation, and working with other advisors to ensure a successful IPO and long-term success in the public market.