1 Day
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الاقتصادية
Saudi IPO Pricing Mechanism Flawed
Financial markets expert Mohammed Al-Omran criticized the pricing mechanism for initial public offerings (IPOs) in the Saudi market, considering it unfair and in need of a comprehensive review. He explained that individuals are forced to pay the full subscription amount upfront in cash, while financial institutions can submit large orders without having actual liquidity, leading to inflated coverage ratios and upward revisions of valuations that do not reflect the companies' true value. He pointed out that many of the large coverage figures rely on non-cash orders, and that financial institutions compete to secure the largest allocation at the upper end of the price range without any real cash commitments. He warned that these practices have contributed to inflated company valuations at the time of offering, followed by price declines after listing. He called for the implementation of solvency and cash guarantee requirements to improve pricing fairness and protect investors. He clarified that the Saudi stock market has been affected in recent years by external factors, foremost among them geopolitical tensions and rising global interest rates, despite the strong growth of the local economy. He emphasized the need for the Capital Market Authority to suspend trading of shares in companies that are surrounded by external reservations regarding their financial statements, in order to safeguard shareholders’ rights. He also pointed out that offering shares of major companies like SpaceX could potentially cause losses for individual investors. He concluded by stating that investor loyalty should be based on opportunities with genuine efficiency, highlighting the importance of increased oversight on struggling companies and promoting transparency to strengthen market resilience and develop the market in line with the size and ambitions of the Saudi economy.
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