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Equity issuance builds mass market

Several leading private Saudi companies are preparing to go public by launching IPOs following the successful flotation of dairy company Al Marai in July.

This was not the first to be underwritten – that was another dairy producer, Sadafco, earlier this year – but it did break new ground by being underwritten by a syndicate of banks.

Even more important, the $614 million offering was the first occasion on which a Saudi limited liability company converted to a joint stock company at the same time as going public through an IPO.

This is possible because of a change in the conditions with which companies must comply before being allowed to come to the market. In the past, companies would have had to establish a track record for several years as joint stock companies before they could float.

This is a significant development, as most of the companies going public in the future will be limited liability and have to convert to joint stock status before listing.

Other companies considering following their example will carefully watch the performance of these dairy firms' shares. There have been seven public offerings in the past two years, but these have either been privatizations or companies established by royal decree.

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