View / More IPOs won’t be enough to fix the Saudi market - Semafor

Saudi Arabia’s stock market has problems that cannot be solved simply by listing more companies. It now has a regulator who has lived with the market’s shortcomings, both as an investor and a government official.

Tadawul is already big, with a market value of about 9.30 trillion riyals ($2.48 trillion) in the week ended Sept. 24. But its benchmark index had its steepest annual decline in a decade last year, falling 12.8% in 2025 despite relative stability in the region and rapid growth in the kingdom’s non-oil economy. The index closed at 10,681.84 on Sept. 27. The market’s size masks a bourse that lacks depth, liquidity, and trust.

That is the central task facing Mazen Al-Sudairi, appointed last month as chairman of the Capital Market Authority. Al-Sudairi spent years at Al Rajhi Capital before moving into government, where he holds an external seat on Public Investment Fund’s investment committee, among other positions. That gives him an understanding of how the kingdom evaluates assets it plans to bring to public markets.

Among Al-Sudairi’s biggest challenges is bridging the gap between the stock market and the broader economy. Tadawul, while the region’s largest exchange, remains dominated by a few sectors and has failed to capture many of the private businesses benefiting from the kingdom’s Vision 2030 transformation. As CMA chairman, Al-Sudairi reports to the prime minister, effectively Crown Prince Mohammed bin Salman, giving him the institutional weight to make bold decisions.

Two recent circulars suggest he is using the most immediate levers at his disposal.

On Sept. 8, the CMA capped public money-market funds’ foreign investments at 5% of net assets. The funds, which function as a quasi-deposit product, are a major home for short-term corporate and individual liquidity. The measure should redirect more of that money into domestic instruments, although its success will depend on whether the products offer competitive returns.

Nine days later, the CMA reminded listed companies that board pay must be clearly linked to individual and corporate performance. Companies whose policies fall short must correct them. The circular named no company, but the warning suggests the regulator intends to scrutinize governance more closely.

The move followed a June paper from the PIF-affiliated Corporate Governance Center, which studied board pay at 345 listed companies and more than 2,400 directors. It found that only 10% of companies offer variable board compensation, while government-linked firms pay more than double the market average, even after accounting for size and sector. The paper recommended that companies explain why their pay arrangements are appropriate rather than merely disclose the figures. The CMA’s circular follows the center’s recommendation.

Together, the CMA’s measures could be seen as quick wins, and neither required new legislation or getting a huge listing to trade. But neither addresses Tadawul’s deeper problems.

Saudi Arabian stocks peaked in 2006 and have yet to recover. Investors have compelling alternatives abroad, including US technology stocks, global funds, larger free floats, and better hedging tools. Capping money-market funds’ foreign exposure may force managers to redirect some capital, but it doesn’t make Saudi stocks more attractive.

The IPO problem cuts deeper. The CMA’s 2025 annual report shows that 39 public equity offerings raised 18.65 billion riyals ($4.97 billion), up 41% from 2024. Yet approved offering and registration applications fell to 36 from 60. Semafor has reported that the CMA is examining how banks priced and allocated recent IPOs after several listings fell below their offer prices.

Retail investors can accept volatility. What they struggle to accept is the sense that an IPO was structured chiefly to maximize proceeds for the sellers, leaving the public with the downside. In some recent offerings, most or all of the shares were sold by existing shareholders rather than issued by the company to grow the business.

Founders, heirs, and venture firms have every right to monetize. But Al-Sudairi must decide what Tadawul’s primary function should be: financing the next phase of corporate growth, or providing an exit for those who financed the last one.

The market will always be a mix of both, and one type of company embodies this dichotomy: family businesses. They account for almost 95% of Saudi establishments and employ 57% of private-sector workers. Bringing even a fraction to market would diversify Tadawul more meaningfully than another state-backed mega-listing. But families need governance structures that protect outside shareholders without leaving founders fearful of losing control.

Getting those companies onto Tadawul is only part of Al-Sudairi’s mission to make the market easier to trade, harder to misprice, and more useful to companies seeking capital. Two circulars are a start, and success will be measured by whether companies list in Saudi Arabia to build rather than whether their owners come simply to leave.

Wael Mahdi is an independent commentator specializing in OPEC and Saudi Arabia’s economy, and co-author of OPEC in a Shale Oil World: Where to Next?