RIYADH: Saudi Arabia is exploring the introduction of a new investment product in the parallel market, Nomu, to foster private sector listings through special purpose acquisition companies.

The Capital Markets Authority has launched a public consultation on the proposed regulatory framework for SPACs, inviting feedback as part of its efforts to expand investment opportunities and drive market growth.

This initiative seeks to address the financing needs of the economy while diversifying investment products and enhancing the depth of the capital market.

Under the proposal, SPACs would be formed as joint stock companies in accordance with the provisions of the Companies Law.

Their main objective would be to acquire or merge with Saudi companies that are not yet listed, in alignment with the Rules on the Offer of Securities and Continuing Obligations.

In February, Fahad bin Hamdan, assistant deputy for financing and investment at the CMA, announced the authority’s plans to introduce SPACs as part of its broader strategy to streamline the listing process within the Kingdom’s capital market.

Speaking at the Capital Markets Forum in Riyadh, Hamdan emphasized the CMA’s efforts to enhance market accessibility and provide alternative pathways for companies to go public.

In addition to SPACs, the CMA is also working to refine the framework for direct listings, with plans to allow such offerings on the main market, Hamdan revealed.

The authority’s goal is to expand the investor base in Nomu, thereby boosting supply and increasing market participation.

These initiatives are part of ongoing regulatory reforms aimed at attracting both local and international investors, including collaboration with the Zakat, Tax, and Customs Authority to eliminate withholding tax on all listed securities.

The authority has stated that SPACs could have a positive impact on liquidity levels by increasing the number of listings.

The authority has stated that SPACs could have a positive impact on liquidity levels by increasing the number of listings.

In a media release, the CMA emphasized that the proposed draft is designed to encourage private sector companies to list on the parallel market through SPACs. This, the CMA noted, would help meet the financing needs of the economy while supporting the growth and expansion of the capital market by introducing a broader range of investment products.

The CMA’s new public consultation on the proposed regulatory framework for SPACs outlines three key components.

First, it specifies the terms for acquisitions or mergers between SPACs and target companies. Sponsors, or any affiliated investment funds, would be prohibited from holding, directly or indirectly, shares or interests in the target company. Additionally, the target company must ensure that at least 80 percent of the SPAC’s funds are held in an escrow account. Furthermore, SPAC shareholders must own at least 30 percent of the target company’s shares upon the completion of the transaction.

Second, SPACs must be structured as joint stock companies and offer redeemable shares at the discretion of shareholders. To ensure sufficient market liquidity, the minimum post-offering capital requirement is set at SR100 million ($26.6 million).

Third, SPACs would be required to complete an acquisition or merger with the target company within 24 months of their listing on Nomu. This deadline may be extended by up to 12 months with approval from the extraordinary general assembly.

The draft framework also outlines specific requirements for sponsors, who must be licensed capital market institutions authorized to manage investments and operate funds.

A sponsor’s ownership stake must remain between 5 percent and 20 percent of the SPAC’s capital throughout its lifecycle, with restrictions on the disposal of their shares during designated periods.

Importantly, the sponsor and its affiliates would not be permitted to vote on the extension resolution, and the CMA must be notified of any such vote.

Additionally, qualified investors would have the option to redeem their shares for a cash amount from the escrow account under certain conditions, including if they vote against a proposed acquisition or merger that is ultimately completed.

If approved, SPACs would be listed on Nomu under the same rules that apply to other publicly listed companies. At least 90 percent of the capital raised in the offering must be held in a local bank escrow account, with access restricted to specific conditions defined in the proposed regulations.

The CMA has invited the public to participate in the consultation by submitting feedback through its official platform.

In 2024, Nomu recorded 28 initial public offerings and three direct listings, raising a total of approximately SR1.1 billion.