The Saudi Arabian Capital Market Authority (CMA) has proposed draft regulations to allow the offering of Special Purpose Acquisition Companies (SPACs) on the Nomu parallel market – which is expected to positively impact liquidity levels by increasing the number of listings there.
This proposal “aims to encourage private sector companies to list on the parallel market through SPACs, which contributes to meeting the financing needs of the economy and supports the growth and depth of the capital market by introducing a diversified range of investment products”.
These SPACs can only be pitched by capital market institutions licensed by CMA to manage investments and operate funds – both conventional and Shariah compliant. The sponsor’s ownership must not fall below 5% of the SPAC’s capital at any time and capped at 20%.
Apart from enabling qualified investors on the Nomu exchange to invest in unlisted companies that were previously difficult to access directly, shareholders can request redemption of their redeemable shares in exchange for a cash amount from the escrow account, proportional to their ownership in the company established for the purpose of acquisition or merger.
“This applies in specific cases outlined in the proposed regulatory framework, including, for example, the completion of the acquisition or merger transaction with the target company and the shareholder voting against the transaction.”
At least 90% of the SPAC’s capital following the offering must be deposited into a dedicated escrow account at a local bank. Access to these escrow funds is limited to specific cases outlined – for example, the completion of an acquisition or merger transaction with the target company.
The value of the target company must represent at least 80% of the funds deposited in the escrow account, and the shareholders of the SPACs must hold no less than 30% of the shares in the target company upon completion of the transaction.
Enhanced protection of shareholders’ rights specifies that neither the sponsor nor any investment fund managed by the sponsor may hold – directly or indirectly – any shares or interests in the target company.
The proposed regulations aim to ensure the offered shares are redeemable at the discretion of shareholders, and requiring that the capital of the SPACs is not less than SAR100 million Saudi (US$26.67 million) after the offering – to support liquidity in the Nomu market.
The SPACs must complete the acquisition or merger transaction with the target company within 24 months from its listing on the Nomu exchange. A 12-month extension can be obtained via shareholder approval from the extraordinary general assembly – without the sponsor and its affiliates participating.
Public stakeholder feedback for this SPAC proposal can be submitted to the CMA by the 8th May 2025.
Separately, the CMA is proposing to allow the offering of a new type or class of shares that has not been previously listed – capped at 10% of the issuer’s capital. This proposal also sets disclosure requirements for redeemable shares – including terms for conversion of shares from one type or class to another.
