F) Proposed amendments to the Instructions for Book Building Process and Allocation Method in Initial Public Offerings (IPOs) compared with the current provisions

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Instructions for Book Building Process and Allocation Method in Initial Public and Secondary Offerings (IPOs)

It is suggested to amend the name of the Instructions for Book Building Process and Allocation Method in Initial Public Offerings (IPOs) to clarify the application of its provisions to both initial and secondary public offerings.

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Chapter 1

General Provisions

Part 1: Preamble

1) These Instructions aim to regulate the book building process and the allocation method in initial subscription initial and secondary public offerings.

2) These Instructions shall have no prejudice to the provisions of the Capital Market Law and its Implementing Regulations.

Part 2: Definitions

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c) For the purpose of implementing these Instructions, the following expressions and terms shall have the meaning they bear as follows unless the context indicates otherwise:

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- Book Building Period: A period determined by the financial advisor, after obtaining the consent of the issuer in the initial public offering or the selling shareholder in the secondary public offering, without prejudice to paragraph (d) of Part (3) (4) or paragraph (c) of Part (9) of these Instructions. It starts from the first day of the financial advisor offering the issuer's shares to the participating entities in accordance with paragraph (a) of Part (3) (4) of these Instructions or from the first day of the financial advisor offering the selling shareholder's shares to the participating entities in the secondary public offering in accordance with paragraph (a) of Part (9) of these Instructions. 

- Bidding Participation Application: The application submitted by the participating entities to the financial advisor of the issuer in order to participate in the book building process, and submitted to the financial advisor in a time no later than the last day of the book building period.

- Appended Bidding Application: The application submitted to the financial advisor of the issuer when the price range is changed, in accordance with paragraph (b) of Part (4) (5) of these Instructions, in a time no later than the last day of the Book building period, and submitted by participating parties in order to participate in the book building or by the participating entities for the purpose of changing their requests concerning the price range.

- Participating Parties: Parties that are entitled to participate in the Book building process in accordance with Part (5) (3) of these Instructions.

- Participating Entities: Entities involved in the Book building process from the specified parties in Part (5) (3) of these Instructions.

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It is suggested to divide the Instructions for Book Building Process and Allocation Method in Initial Public Offerings (IPOs) into chapters, and   include the provisions of Part 1 “Preamble” and Part 2 “Definitions” in Chapter 1 of the Instructions, and amend Part 1 and Part 2 in line with the case of the secondary public offering.

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Part 5 3: Participating Parties

a) Those whom may participate in the book building are:

1) Public and private funds that invest in securities listed on the Saudi Stock Exchange as permitted by the fund’s terms and conditions and in accordance with the provisions and limitations stipulated in the Investment Funds Regulations. In addition, public funds must comply with the following when submitting the bidding participation application:

1. The value of the shares in the bid of a public fund and all other public funds with the same fund manager shall not exceed (25%) of the total offer value.
2. The public fund shall not submit a bid with an amount in excess of (10%) of the total offer value.
3. The public fund shall not submit a bid on securities of the issuer in the initial public offering or of the selling shareholder in the secondary public offering with an amount exceeding (20%) of the fund’s net asset value.
4. The public fund shall not submit a bid with an amount that exceeds (10%) of its net asset value in the issuer’s offered shares in the initial public offering or in the selling shareholder in the secondary public offering.

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4) Any legal persons allowed to open an investment account in the Kingdom, and an account with the depositary center, including foreign legal persons who are allowed to invest in the market where the shares of the issuer are to be listed or the market in which the offered shares are listed in the secondary public offering, with regards to the conditions of listing companies investments in listed securities stipulated in the Authority’s circular number (6/05158) dated 11/08/1435H corresponding to 09/06/2014G based on the Capital Market Authority's board resolution number (9-28-2014) dated 20/07/1435H corresponding to 19/05/2014G.

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It is suggested to rearrange Part 5 “Participating Parties” of the Instructions for Book Building Process and Allocation Method in Initial Public Offerings (IPOs) to be included in Chapter 1 “General Provisions” of the Instructions, to clarify the application of its provisions on both initial and secondary public offerings, and amend subparagraphs (1) and (4) of paragraph (a) thereof in line with the case of the secondary public offering.

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Chapter 2

Book Building Process and Allocation Method in Initial Public Offering

Part 3 4: General Provisions

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Part 4 5: Requirements for Book building and Changing the Price Range

1. During book building, the following requirements must be satisfied:
1. The issuer's financial advisor must announce the book building period without prejudice to paragraph (d) of Part (3) (4) of these Instructions.

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Part 7: Shares Allocation for Participating Entities after Completing the Book building

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2) Without prejudice to paragraph (b) of Part (3) (4) of these Instructions, the allocation of the offered shares is made as the financial advisor deems appropriate in coordination with the issuer

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It is suggested to divide the Instructions for Book Building Process and Allocation Method in Initial Public Offerings (IPOs) into chapters, and   include the provisions of Parts (3, 4, 5, 6, 7, 8) thereof in Chapter 2 of the Instructions to apply in the case of initial public offering, and rearrange the numbering of those Parts in line with the suggested amendments on the Instructions.

5          

Chapter (3)

Book Building Process and Allocation Method in Secondary Public Offering

Part 9: Book Building Process and Allocation Method in Secondary Public Offering

a) The financial advisor of the selling shareholder is permitted to offer the shares to the participating parties and retail subscribers during the book building period, provided that the period of the Authority's review of the secondary public offering’s notice - in accordance with the Rules on the Offer of Securities and Continuing Obligations – expires without issuing a notification by the Authority stating that the secondary public offering is not to be made.

b) The financial advisor, in coordination with the selling shareholder in the secondary public offering, shall determine a percentage of the full offering to be allocated to institutional investors, and the financial advisor shall determine a percentage of it to be allocated to public funds; in the event that there is insufficient coverage from public funds for the percentage allocated to them, the percentage allocated to them shall be reduced within the limits of what was covered by them.

c) The book building period shall not exceed (14) calendar days.

d) The participating entities provide their bidding participation applications in the book building in the manner that the financial advisor of the selling shareholder in the secondary public offering determines, provided that the financial advisor and any other capital market institution that is associated with receiving bidding participation applications make the necessary arrangements and procedures to ensure documenting the bidding participation applications and verifying their validity, and verify the financial solvency of the participating entities and their ability to pay the value of the shares requested in the bidding participation application when allocated, before registering the bidding participation applications.

e) During book building, the following requirements must be satisfied:

1) The financial advisor must announce the book building period without prejudice to paragraph (c) of this Part.

2) The financial advisor must announce the price range, and ensure its availability to all participating parties.

3) The announcement made by the financial advisor regarding the book building period and price range must be available to all participating parties on its website.

4) At the end of the book building period, the financial advisor shall announce the offer coverage percentage by all participating parties on its website.

f) The allocation percentage for participating entities shall be set forth in the secondary public offering document, provided that the allocation percentage for public funds is indicated in the offering document.

g) The allocation percentage for retail subscribers in the secondary public offering shall be set forth in the secondary public offering document.

h) It is not permissible to allocate any of the shares of the secondary public offering to retail subscribers if the final price of the offering is higher than the closing price for the day preceding the end of the subscription period for retail subscribers. In this case, all subscription amounts shall be returned to the retail subscribers without any deduction.

It is suggested to add a new chapter to the Instructions for Book Building Process and Allocation Method in Initial Public Offerings (IPOs) to include the provisions governing the book building process and allocation method in the secondary public offering, including:

1. Stipulating that shares may be offered to the participating parties and retail subscribers during the book building period, and clarifying the mechanism by which participating parties may participate in the book building process.
2. Stipulating the book building conditions in the secondary public offering, including the mechanism for the allocation of the shares and the book building period.
3. Stipulating that shares may not be allocated to retail subscribers in the secondary public offering if the final price of the offering is higher than the closing price for the day preceding the end of the subscription period for retail subscribers.

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Chapter (4)

Publication and Entry into Force

Part 9 10: Publication and Entry into Force

These Instructions shall be effective in accordance with its approval resolution.

It is suggested to divide the Instructions for Book Building Process and Allocation Method in Initial Public Offerings (IPOs) into chapters, and   include the provisions of Part 10 thereof in Chapter 4 of the Instructions. ​