RIYADH: Saudi Arabia’s local digital bank Derayah Financial Co. plans to go public on the Tadawul’s main market by offering 20 percent of its total share capital.

The Public Investment Fund-backed company aims to offer 49,947,039 ordinary stocks, following the Capital Market Authority’s approval on Dec. 25 for the registration and public offering of its shares through a partial sale by existing shareholders.

The move aligns with the Kingdom’s broader efforts to develop its fintech sector, which has seen substantial growth in recent years.

The Saudi Central Bank, also known as SAMA, has been working to boost the fintech ecosystem, introducing regulations and granting licenses to new fintech companies to diversify the financial landscape.

As part of the Financial Sector Development Program under Vision 2030, the Kingdom aims to increase the contribution of fintech firms to the economy, enhance financial inclusion, and encourage innovation in digital financial services.

Regulatory reforms, including sandbox environments and open banking frameworks, have made the country an attractive destination for fintech innovation and cross-border collaborations.

As of June 30, Derayah’s assets under management totaled SR15.1 billion ($4.03 billion). The company ranks among the leading independent brokers in brokerage revenues and holds the third-largest market share in the Saudi digital brokerage sector, capturing around 14 percent of the market.

The Kingdom has been witnessing an increasing number of initial public offerings on the Saudi stock exchange, driven by investor interest and the government’s push to diversify the economy.

The announcement said the proceeds from the offering will be distributed to current shareholders in proportion to their existing holdings, with the company receiving no portion of the funds.

This comes after the company appointed HSBC Saudi Arabia as the sole financial adviser, bookrunner, global coordinator, lead manager and underwriter.

Once the offering process is completed and formalities with the CMA and Tadawul are finalized, the shares will be listed and traded on the Saudi Exchange.

The offering will initially target institutional investors, with up to 10 percent of the offered shares potentially being reallocated to individual investors based on demand.

“This IPO goes beyond being a milestone for Derayah; it stands as a testament to our steadfast dedication to democratizing investment and providing all types of investors with innovative, accessible, and comprehensive wealth-building solutions,” said Taha Al-Kuwaiz, co-founder and chairman of Derayah.

Derayah reported a strong financial performance in 2023, with an operating income of SR624 million and a net profit of SR330 million, reflecting a net profit margin of around 53 percent.

The company sustained its growth momentum into the first half of 2024, with operating income surging by 63 percent year-on-year, while net profit jumped by 70 percent year-on-year to reach SR228 million.

Since 2016, Derayah has witnessed a 12-fold increase in its customer account base, reflecting its expanding market presence and growing investor confidence.

“In recent years, we have achieved exponential growth by capitalizing on favorable local, regional, and global capital markets,” Mohammed Al-Shammasi, the CEO of Derayah, said.

The company’s IPO will be available to both individual and institutional investors, including institutional investors outside the US.

The final offer price will be determined upon completion of the book-building process, which is expected to gauge investor interest and assess market demand for the shares.

Derayah played a pivotal role in enhancing the accessibility of financial services to a wide range of clients.

The company’s investment solutions and digital-first approach have positioned it as a key player in the Kingdom’s rapidly evolving financial landscape.

The listing is expected to enhance liquidity, improve corporate governance, and further diversify the Saudi capital market.

RIYADH: Saudi Arabia’s capital markets are experiencing significant growth, with issuers raising over $130 billion in the past five years as the Kingdom accelerates financing for its Vision 2030 plan.

The Capital Market Authority’s 2024-2026 strategy aims to promote investment, attract global interest, and support economic diversification, advancing the nation’s financial sector. 

According to a report from S&P Global, Saudi issuers, including the government and private sector, have raised more than $130 billion over the past five years through US dollar-denominated issuances.

“This comes on top of the $144 billion that they raised locally in Saudi riyal during the same period, with the implementation of Saudi Vision 2030 explaining part of this flurry,” the US-based credit rating agency said.

While the government makes up about 60 percent of these issuances, Vision 2030 has also opened significant opportunities in the non-oil economy and banking system.

Despite the rise in external leverage, market conditions remain favorable, with falling interest rates providing supportive dynamics, S&P said.

“We still expect leverage to remain manageable in our base-case scenario, with private-sector debt to GDP (gross domestic product) staying below the 100 percent mark in the next 12-24 months,” the agency added.

The current market environment is favorable for issuers, with declining interest rates and supportive financial conditions providing a conducive backdrop for sustained capital raising. This trend will continue as the Kingdom pushes ahead with large-scale projects and economic diversification efforts.

Residential mortgage-backed securities market on the horizon

One of the key factors to watch over the next one-to-two years is the potential establishment of a residential mortgage-backed securities market in Saudi Arabia. 

The credit rating agency said that at the end of September, “banks were sitting on more than $175 billion of mortgages that are predominantly at fixed rates and have short-term funding sources, primarily in the form of domestic deposits.”

If interest rates continue to decline, these mortgages could become more attractive for secondary market transactions. The ability to securitize and sell them would allow banks to move assets off their balance sheets, freeing up capital for further lending and investment in Vision 2030 initiatives. 

“This assumes that the legal hurdles relating to the issuance of RMBS are resolved, or at least the risks are floored at a level that would attract local and international investors’ interest,” S&P said.

The Saudi Real Estate Refinance Co., which has an A-/Positive rating, is expected to play a key role in facilitating RMBS market development. 

Direct market issuances could emerge as another avenue for mortgage-backed securities, potentially unlocking significant financial capacity for banks.