Protect family firms listed on the Tadawul

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Mohammed Al-Kuwaiz, chairman of the Saudi Capital Market Authority (CMA), emphasized that the listing of more companies in the primary or secondary capital market would enhance market liquidity levels, improve the market index and make it more attractive. Landlords, for example, could secure better financing from banks on easier terms and with lower collateral guarantees for the governance and safety of banks.

He made these remarks while addressing a forum on “Stock market listing,” organized by the Riyadh Chamber of Commerce and Industry (RCCI) in cooperation with the Saudi Stock Exchange (Tadawul). Al-Kuwaiz explained that the Tadawul has been included in global indices that measure the levels of performance in the market, and that this step has reflected positively on the market and the bourse has attracted more foreign investors. He said: “We are beginning to see the benefits of investors entering the Saudi market, making our market more mature and becoming one of the most developed markets in the region.”

In his speech, RCCI Chairman Ajlan Al-Ajlan said: “The fruitful efforts in improving rules and regulations related to the listing of securities have contributed to granting companies a wider range of options, both at the level of the public offering of shares and privatization and at the level of procedures for offering and carrying out studies, which encourages the listing of companies in the financial market and leads to the strengthening of the national economy.”

Tadawul CEO Khalid Al-Hussan said that the company is following the growth of the market in a better way in terms of the formal procedures for listing, and the companies that intend to list on the stock exchange. The Tadawul is offering a stimulus package to companies that have listed in the proper manner.

Okaz newspaper recently published statements made by Saudi Capital Market officials and the RCCI president at the Riyadh forum, which examined the readiness of family companies to list on the Tadawul, and thus join global indices.

These officials have nothing to do with the family companies listed in the capital market, most of which proved to be a terrible failure for those who invested in them when their shares were floated for public circulation. Before making part of their firms available in an initial public offering, some family companies published reports indicating their excellent performance and financial position as well as expectations for even better prospects in the future.

This encouraged the public to buy shares when they were offered for sale at a high premium. However, the new shareholders were soon faced with reality when the value of their shares began to fall and was worth less than the price at the time of the IPO, which means that the data provided to the public was not accurate. Similarly, the achievements claimed by the owners of those companies before launching an IPO were misleading and incorrect. It was also evident that those who fixed the prices of the shares and the amount of the share premium were not accurate and fair in their dealings.

Moreover, the owners of some family businesses who sold only one third of their shares for an exorbitant share premium continued to maintain control of the company with the authority to select members of the board of directors and executive management. They managed to monopolize the business of the company even after selling shares to the public.

They also exercised the authority to sign contracts between the company, which had already become a joint stock firm, with similar companies and establishments, even though that is in contravention of the provisions of the governance law.

With a two-thirds majority, they dominate the general assembly with the authority to decide the board of directors and chairman of the board. As a result, it is mainly their interests that are served.

I wish that CMA Chairman Al-Kuwaiz would take the initiative to address the problems of family companies listed on the Tadawul and rectify their situation by ensuring the fair treatment of Saudi investors and the protection of their investments, instead of working to list more family businesses on the stock exchange that may experience the same fate as that of previous family companies whose shareholders incurred losses.

If we examine the balance sheets of some family companies that are listed on the Tadawul, we can see that some of them have not made any profit over the years while others are on the brink of shutting down and subsequently are reducing their capital in order to remain among the listed companies in the market.

It is, therefore, essential to correct the deficiencies in the governance law so that a company cannot violate that law under the pretext of having the approval of its general assembly, since that body has virtually no authority or influence but only exists to justify the acts of the board of directors when it violates regulations.

— Dr. Ali Al-Ghamdi is a former Saudi diplomat who specializes in Southeast Asian affairs. He can be reached at algham@hotmail.com


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