Overview of Public Merger & Acquisition Regulations in the Kingdom of Saudi Arabia
Since the introduction by the Capital Market Authority (the “CMA”) of the Kingdom of Saudi Arabia (the “Kingdom”) of the amended Merger and Acquisition Regulations (the “M&A Regulations”) there has been a distinct increase in market activity, indicating that public M&A transactions will continue to drive deal flow in the Kingdom. This note, updated in August 2019, provides a high-level overview of the current regulatory regime of the Kingdom governing public M&A transactions, and how certain of the M&A Regulations are tending to be applied in practice.
CMA Announces New Rules for Ownership in Listed Companies by Foreign Strategic Investors
As part of the Kingdom of Saudi Arabia’s efforts to regulate and develop the capital markets and to facilitate foreign investment, the Capital Market Authority (CMA) has approved the Instructions for Foreign Strategic Investors’ Ownership in Listed Companies (the “FSI Instructions”), which came into effect on June 26, 2019. The FSI Instructions have removed the existing limit on the foreign ownership of a Saudi-listed company for foreign strategic investors (FSIs) that meet the FSI Instructions’ criteria, allowing them to take controlling stakes in Saudi-listed companies. The FSI Instructions are complementary to the “Rules for Qualified Foreign Financial Institutions Investment in Listed Securities” (the “QFI Rules”) approved by the CMA in 2015 (as amended).
Offering Securities in the Kingdom of Saudi Arabia
On 31 December 2017, the Capital Market Authority (the "CMA
") published the Rules on the Offer of Securities and Continuing Obligations ("ROSCO
"), which were approved by CMA Board Resolution No. 3-123-2017 dated 9/4/1439H (corresponding to 27 December 2017). In the same Board Resolution, the CMA Board also approved the Listing Rules (the "Listing Rules
") of the Saudi Stock Exchange (“Tadawul
The ROSCO and the Listing Rules are effective as of 1 April 2018 and have replaced:
- the Offer of Securities Regulations approved by CMA Board Resolution No. 2-11-2004 dated 20/8/1425H (corresponding to 4 October 2004), as amended;
- the Listing Rules approved by CMA Board Resolution No. 3-11-2004 dated 20/8/1425H (corresponding to 4 October 2004), as amended; and
- the Parallel Market Listing Rules approved by CMA Board Resolution No. 3-151-2016 dated 22/3/1438H (corresponding to 21 December 2016).
This article sets out a high-level overview of the new legal framework governing the offering of securities in the Kingdom of Saudi Arabia (the “Kingdom
Taking Security in the Kingdom of Saudi Arabia
The Kingdom of Saudi Arabia is a nation with a vast and growing population of over 30 million people and significant requirements for soft and hard infrastructure. Historically, the responsibility for procuring this infrastructure has been borne by the Government, but the oil price decline and reduction of hydrocarbon export revenues, which has resulted in the development of the Kingdom’s vision for social reform and economic diversification away from dependence on hydrocarbon export revenues (Saudi Vision 2030), has forced the Kingdom to rethink how it will meet its infrastructure requirements in the future. As well as calling for a greater focus on the development of non-oil and gas-related industries (which creates additional infrastructure demand in and of itself), Saudi Vision 2030 calls for greater participation by the private sector (i.e., through the use of “public private partnerships” and other models where private sector participants bear funding responsibility) in developing the Kingdom’s infrastructure. This increased participation by the private sector can be expected to result in a spike in the use of limited recourse debt finance. Although many limited recourse debt financings have been successfully closed in the Kingdom, the laws of the Kingdom have, historically, presented some challenges for lenders seeking a robust security package in connection with limited recourse debt financings that is comparable to security packages seen in other jurisdictions.
Webinar: Shearman & Sterling’s Energy Group Provides a Saudi Arabia Update
Partner Dr. Sultan Almasoud (Saudi Arabia–Corporate) and counsel Brendan Hundt (Saudi Arabia–Project Development & Finance) hosted a webinar on December 12 concerning updates in the energy sector in Saudi Arabia. This year has been an exciting time for the energy industry in Saudi Arabia, following the Kingdom’s release of the Vision 2030 and the National Transformation Program 2020 last year. The discussion focused on the meaning and effects of the new developments in the region’s energy sector for investors, as well as open questions on this topic.
You can watch the webinar here
Public Healthcare in the Kingdom of Saudi Arabia: Plans for Private Sector Participation
Saudi Vision 2030 and the National Transformation Program 2020 are built upon the encouragement of private sector investment in sectors that have been predominantly funded and serviced by the Government in the past. Reform of how public healthcare and related services are delivered in the Kingdom is one of the Government’s most important priorities. According to the National Transformation Program 2020, the Ministry of Health (the “MOH”) plans to spend up to SAR23 billion prior to 2020 to reform and restructure primary health care. This article summarises our current understanding of the strategic framework that has been developed by the MOH for private sector participation (“PSP”) in the delivery of public healthcare in the Kingdom, including the MOH’s PSP initiatives, the phases for the implementation of the PSP program, the proposed PSP structure and the proposed delivery models for the PSP initiatives.
Shearman & Sterling Contributes to Global Legal Insights – Initial Public Offerings
Shearman & Sterling attorneys acted as contributing editors and contributors to Global Legal Insights: Initial Public Offerings (First edition, Global Legal Group, 2017), published by Global Legal Group Ltd, London. The guide covers the key steps, legal issues and market practices involved in the initial public offering process by examining practices in jurisdictions around the world.
Company Types in the Kingdom of Saudi Arabia
Knowing which corporate vehicle to use is a key concern in any commercial enterprise. This article will summarise the different types of corporate entity used within the Kingdom of Saudi Arabia and the key differences between them.
Arbitration in the Kingdom of Saudi Arabia
An important consideration for foreign companies investing in the Kingdom of Saudi Arabia or contracting with Saudi companies or entities of the Government of the Kingdom is how they will resolve potential disputes with their Saudi counterparty. International arbitration is generally perceived by foreign companies to be preferable to relying on the courts in the Kingdom for resolving disputes. However, even if they are willing to agree to arbitration, Saudi counterparties are not always prepared to accept arbitration outside of the Kingdom. This article explains the law applicable to Saudi-based arbitration, as well as some recent developments at the Saudi Centre for Commercial Arbitration and sets out some practical considerations to bear in mind when drafting dispute resolution clauses that refer disputes to arbitration in the Kingdom.
An Overview of the Industrial Sector in the Kingdom of Saudi Arabia and the National Industrial Cluster Development Program
Based on a variety of export-oriented industries including oil and gas, metals and mining, logistics, agrochemicals and food and beverages, the Kingdom of Saudi Arabia has the largest industrial output in the MENA region. Given the Kingdom’s substantial hydrocarbons resources (including gases and liquids associated with crude oil and methane production) and low extraction costs, this industrial output has historically been dominated by oil and gas related industries (e.g. oil production and petrochemicals).
Understanding Employment Law in the Kingdom of Saudi Arabia
Understanding employment law in the Kingdom of Saudi Arabia is important for any business operating in, or seeking to enter, the Saudi market. The legal regime regulating employment in the Kingdom may be seen as relatively employee-friendly and, in some key aspects, such as termination of employment, regulation of working hours and employment of women, differs markedly from what is considered standard practice in other jurisdictions. Establishing and implementing human resources policies that ensure compliance with, and minimise the risks associated with, the intricacies of the employment legislation in the Kingdom will assist any prospective business when employing staff in the Kingdom.
New Saudi Qualified Foreign Investor Rules and IPO BookBuilding Instructions Approved
This year has witnessed remarkable legal developments in the capital markets landscape of the Kingdom of Saudi Arabia. In particular, the Capital Market Authority of the Kingdom (“CMA”) approved the amended Rules for Qualified Foreign Financial Institutions Investment in Listed Securities (the “QFI Rules”), which came into effect on 4 September 2016. Another significant legal development is the CMA’s approval of the Instructions of Book Building Process and Allocation Method in Initial Public Offerings (the “Book Building Instructions”), which will become effective on 1 January 2017. These legal developments are part of the Kingdom’s ongoing efforts to grow its capital market, which has the largest market capitalisation in the MENA region, by facilitating foreign investment.
Mining in the Kingdom of Saudi Arabia – An Overview
Covering two million square km, the Kingdom of Saudi Arabia is the largest country by landmass in the Middle East and the 13th largest in the world. The Kingdom’s geology gives it an abundance of natural resources and raw materials. To date, over 48 minerals have been identified in the Kingdom, including feldspar and nepheline syenite; garnet; gold; zinc; granite; graphite; gypsum; tantalum; high-grade silica sand; kaolinitic clays; limestone; magnesium; marble; olivine; pozzolan; rock wool; silver; and zeolites. Extraction of these metals is taking place at a rapid pace, especially in high-demand areas such as aluminium and steel. The Kingdom has identified 1,273 sites of precious metals and 1,171 sites of non-precious metals.
Enforcement of Foreign Judgments and Arbitral Awards in the Kingdom of Saudi Arabia
In 2012, the Kingdom of Saudi Arabia introduced a new Arbitration Law (the “Arbitration Law”) which replaced the previous Arbitration Law of 1983. The Arbitration Law is largely based on the 1985 UNCITRAL Model Law on International Commercial Arbitration and introduced a number of promising changes to arbitration as a method of dispute resolution in the Kingdom. However, presently it is difficult to assess the degree of change in practice. It remains to be seen how Saudi courts will apply the law going forward. The implementing regulations of the Arbitration Law are yet to be enacted.
Introduction to the Legal System of the Kingdom of Saudi Arabia
This article sets out a brief overview of the legal system in the Kingdom of Saudi Arabia and should be treated only as a general guide and not as legal advice.
Telecoms in the Kingdom of Saudi Arabia – An Overview
The Kingdom of Saudi Arabia has the largest information communication and technology market in the Middle East by both capital volume and spending. It is dominated by the Saudi Telecom Company (“STC”), Mobily and Zain, though new entrants to the market in the form of Mobile Virtual Network Operators (“MVNOs”) have begun to create additional competition. With 53 million subscribers to mobile phone services and a penetration rate of approximately 165%, competition in the industry is already fierce, but the demand for services is growing. It is a market quickly becoming one of the most coveted by local and international companies. In consideration of this, we outline in this article the Government entities, regulators and legal framework that underpin the sector and observe how the sector has been liberalised and is continuing to grow.
Healthcare in the Kingdom of Saudi Arabia – An Overview
The Kingdom of Saudi Arabia is widely recognised as having the largest and fastest growing population in the Gulf Cooperation Council (the “GCC”), with over half the population under 40. Until 2014, all Saudi nationals were entitled to free healthcare. From 2014, free healthcare in Government hospitals has no longer been available to Saudi nationals working in the private sector. The growing population coupled with these new restrictions highlights the potential for rapid growth in the Kingdom’s healthcare market.
Oil and Gas in the Kingdom of Saudi Arabia – An Overview
The Basic Law of Saudi Arabia (Royal Decree No. A/90 dated 27/8/1412 H (1 March 1992)) vests all of the Kingdom of Saudi Arabia’s oil and gas wealth in the Government. The Ministry of Energy, Industry and Mineral Resources (“MEIM”) (previously the Ministry of Petroleum and Mineral Resources) develops and implements policies relating to oil and gas and represents the Kingdom’s oil production and pricing policies internationally.
Understanding the Key Government Institutions and Ministries in the Kingdom of Saudi Arabia
As a result of the new economic realities brought about by reduced global oil prices and the resultant reduction in the oil export revenues of the Kingdom of Saudi Arabia, for so long the country’s economic lifeblood, there are many significant changes taking place in the Kingdom. In response to these new economic realities, “Saudi Vision 2030”, a wide-ranging privatisation and economic reform program, was released in early 2016 and sets out a vision for repositioning the Kingdom’s economy away from its dependence on oil export revenues and Government spending.
Doing Business in the Kingdom of Saudi Arabia
As the third largest recipient of foreign direct investment in the region, not to mention its standing as the region’s largest economy, the Kingdom of Saudi Arabia is of significant interest to foreign investors, particularly in light of recent Government initiatives.
Transforming Saudi Arabia: National Transformation Program 2020 Approved
On 6 June 2016, the “National Transformation Program 2020” was approved by the Saudi Cabinet. This caps a frenetic few months of activity in the Kingdom that began with the approval of “Saudi Vision 2030” at the end of April, saw Ministerial changes and questions as to the role that Saudi Aramco and the Public Investment Fund (“PIF”) would play in the country’s plans to reduce its dependency on oil and diversify its economy by encouraging greater private sector participation, reducing public spending and promoting newly-established industries that would create new opportunities for the people of the Kingdom. Below we take an initial look at the National Transformation Program 2020 and the opportunities that may result in the Kingdom.
Saudi Renewables: Is the Sleeping Giant Finally Awakening?
On 1 June 2016, Saudi Electricity Company (“SEC”) invited expressions of interest from potential lead developers for the development of two 50MW solar photovoltaic (“PV”) Independent Power Plants (“IPPs”) in Al-Jouf and Rafha, Kingdom of Saudi Arabia, with their output to be sold to SEC under a long-term Power Purchase Agreement. These new IPPs are expected to attract unprecedented interest from global solar energy players, as well as established regional power developers. Is the Saudi renewables sector, for so long the sleepinggiant in the renewable energy world, finally awakening?
New Saudi Companies Law Approved
2015 has seen a number of interesting legal developments in Saudi Arabia, particularly from a foreign investment perspective. As well as the approval of the new Companies Law 1437H/2015G (the “NCL”), which will be of interest to local enterprises and foreign investors alike, this year has seen the enactment of rules that permit qualifying foreign financial institutions to trade in shares listed on the Tadawul and the announcement that the 25% local ownership requirement for retail and wholesale businesses wishing to sell, distribute and market their products directly in the Kingdom will be removed.