Finance

Saudi Arabia’s Evolving Data Privacy Landscape

Posted on January 31, 2023 - 7:29 am by perpetual-admin

As technology continues to develop, countries worldwide have begun to recognise and address the importance of data privacy. Saudi Arabia is no exception. As part of its Vision 2030 economic reform plan, the government has prioritised data privacy and security, creating new regulations to ensure that financial information is collected, used, and stored securely.

In the past, financial institutions have had the freedom to collect, store, and process customers’ personal information with few restrictions. With the introduction of the new regulations, however, financial institutions in Saudi Arabia must now comply with strict data privacy requirements to ensure customer data is protected. This will bring Saudi Arabia in line with international standards, while also providing greater protection for its citizens. In this article, we will explore these changes and the implications for financial institutions in Saudi Arabia.

How are Data Privacy Laws & Regulations Changing?

The government of Saudi Arabia announced the new Personal Data Protection law in 2021, which aims to protect and regulate the collection, storage, and use of personal data by institutions and businesses in the Kingdom. Since the initial announcement, there was a delay in the implementation of the law to give more time for consultation with stakeholders. After these considerations are taken into account, the law is expected to come into force in March 2023.

The new data privacy regulations aim to safeguard customer information and protect it from misuse or abuse. Financial institutions are required to meet the requirements of these laws, which include implementing specific measures to ensure the security and confidentiality of customers’ personal data.

To comply with these laws, financial institutions must take the following steps:

Create and implement a data protection policy
Appoint a Data Protection Officer (DPO) to oversee compliance
Implement technical and organisational measures to protect customer data
Conduct regular risk assessments and audits
Ensure that all customer data is securely stored and processed
Use robust encryption technologies to protect customer data
Provide customers with clear and adequate information on how their data is being used
Put in place procedures for dealing with data breaches
Put in place mechanisms for customers to exercise their rights under the regulations

It is important to note that these regulations are still in the process of being developed and, while they may be subject to change, all financial institutions must ensure that they are aware of the latest developments and regulations by March 2023 to remain compliant.

The Collaboration of Finance & Tech Teams is Key

The process of compliance with data privacy regulations can be a daunting task for any financial institution in Saudi Arabia. But the responsibility for compliance does not lie solely with the finance teams. It requires a collaborative effort between the finance and technology teams to ensure that all regulations are being met and that customer data is adequately protected.

Technology teams must be involved in the implementation of any regulatory requirements, as they are the ones with the technical expertise to implement the necessary measures. Inter-departmental communication and collaboration are essential to ensure that all requirements are being met. This includes sharing information and knowledge between the finance and technology teams to ensure that everyone is on the same page. Everything from the training of staff to developing and implementing an internal data protection policy must be done in collaboration with the technology team.

By working together to understand and comply with the new data privacy regulations, financial institutions in Saudi Arabia can ensure that customer data is adequately protected and remain compliant with the law.

The Legal Considerations of Alternative Funding of Growing Companies

Posted on February 19, 2023 - 1:07 pm by perpetual-admin

Funding your business is a critical part of your growth journey, and in Saudi Arabia, banks are often the first port of call for borrowing funds. Banks, however, have been restricting lending to private businesses globally, and Saudi Arabia is not an exception. To the contrary, bank credit availability to private business in Saudi Arabia can be rather limited. That’s why a business may wish to explore alternative funding sources. In this article, we will explore the different funding sources available and discuss some of the legal implications of each.

What Type of Alternative Funding Sources are Available in KSA for early stage growth?

Saudi Arabia’s venture stage ecosystem is rapidly maturing, and as such, the choice of alternative funding sources available to businesses continues to expand. It’s essential to keep in mind that for in-KSA enforceability, Shari’a compliance may be a legal requirement for recovery of profit charges or “interest”.

Angel Investors

Angel investors are customarily high-net worth individuals who provide capital to entreprenerus during the life of their ventures in exchange for an ownership stake in the business. This type of funding is often more readily available than traditional bank loans and can be used to fund the launch and very early stages of growth of a business.

Legal Consideration: Documentation in angel investment transactions is key, and while some angel investors can be qualifying or accredited investors, they may not be sophisticated. Therefore it is very important that the transaction documentation is prepared by specialists to protect both parties, and to take into consideration the private placement nature of the offering securities given applicable laws. It is also essential to perform due diligence on the investor and ensure that they qualifying or accredited investors.

Venture Capital (VC)

Venture capital is a form of capital provided by specialist investment funds (referred to as venture capital funds) to businesses in exchange for equity. VC is typically available from after the proof-of-concept stages of a business, through advanced scaling stages.

Certain venture capital funds provide debt financing, which can help businesses looking to finance working capital or other aspects of their capital requirements, but without parting way with equity. Customarily venture debt is available to companies that received institutional venture capital equity investments.

Legal Consideration: Both forms of venture capital financing are considered to be private placements or financing, and as such special legal attention should be given to documentation to ensure that they are drafted in line with applicable laws. Additionally, businesses looking to receive venture capital should carryout internal legal and compliance review in preparation for investor legal due diligence.

Additionally, debt funding is likely to be subject to the borrower providing security to the lender, and the perfection of such security. The borrower should consider carefully the scope of security and its ability to perfect the security in favour of the lender, especially if the lender is a foreign party, which is customary.

Equity Crowdfunding

Equity crowdfunding is a form of funding provided by a large group of investors, including retain investors, through a platform in exchange for a share of the business’ equity.

Legal Consideration: Under Saudi law, equity crowdfunding is permitted, subject to certain restrictions. Fundraising must occur via a platform licensed by the Capital Market Authority (CMA).

Debt Crowdfunding

Debt crowdfunding is where investors provide funds in exchange for a fixed return. This type of funding is often used by businesses to meet their short-term cash flow needs or finance a specific project. In Saudi Arabia, two debt crowdfunding platforms recently received licensed from the Saudi Central Bank (SAMA) – Forus and Tameed.

Legal Consideration: In 2021, SAMA issued a new set of regulations that clarify the legal requirements for debt crowdfunding platforms. The platform must be registered with and regulated by SAMA, submit periodic financial statements, and establish a risk management system. If you choose debt crowdfunding, you must ensure that the platform you use is fully compliant.

Key Takeaways

Alternative funding sources are worth considering if you’re looking to finance the launch or growth of your business. However, it is crucial to consider the legal implications of each type of funding before selecting an option. It is also possible for you to utilize a number of funding options in tandem. In Saudi Arabia, angel investment, venture capital, equity crowdfunding, and debt crowdfunding are all viable options for businesses looking to raise capital, but each with its own set of legal implications.

To discuss the legal implications of the options suitable to you, contact our team.

Listing and IPO Trends in KSA

Posted on February 21, 2023 - 12:50 pm by perpetual-admin

The Kingdom of Saudi Arabia (KSA) has been making significant strides in developing its capital market and promoting investment in recent years. The listing and initial public offering (IPO) trends in KSA are a reflection of the growth and development of the country’s financial sector.

Listing on the stock exchange allows companies to raise capital and increase visibility, while IPOs provide a platform for new and growing companies to enter the public market. Understanding these trends is essential for investors, entrepreneurs, and stakeholders in the financial sector to make informed decisions and capitalize on the opportunities available. This article will provide a brief overview of the listing and IPO trends in KSA, including some of the key drivers and future outlooks.

Current Market Trends

Saudi Arabia boasts the highest growth rate among G20 nations, backed by the government’s strong effort to diversify its economy and a steady flow of foreign direct investment. Despite global market volatility in 2022, Saudi Arabia’s stock market has remained relatively resilient. Ending 2022 with a bang, the economy grew by 8.8% in the third quarter, with the market capitalization of publicly traded companies totalling around $2,706 billion (USD) by January 2023. However, the nation’s stock exchange experienced its first dip since 2015, with the Tadawul All Share Index (TASI) slipping by 7.1% by the end of 2022.

Despite this, the overall trend in KSA’s stock market has been positive. Q4 of 2022 saw the MENA region, and more specifically Saudi Arabia, become a dominating force in listing activity. Seven Initial Public Offerings (IPOs) were conducted on the Tadawul Main Market with an impressive collective sum of $4.7 billion raised from investors.

Additionally, six IPOs brought in an additional $65 million while two direct listings occurred on Nomu – Parallel Market as well. Luberef subsidiary Saudi Aramco Base Oil Company achieved the largest IPO, which raised a staggering $1.3 billion – amounting to more than double what had been collected through all Saudi offerings during Q3 2022.

Key Drivers of Saudi Arabia’s Listing and IPO Market

The key drivers of Saudi Arabia’s listing and IPO market can be attributed to the nation’s successful economic policies and several serendipitous global events. Here are some of the factors at play:

Reforms such as Vision 2030, the National Transformation Program (NTP), and introducing a new regulatory framework for public offerings have played a pivotal role in driving investment and making it easier for businesses to list. This has enabled companies to gain access to capital markets, broadening their investor base and allowing them to scale up quickly.
Increased investor confidence and a low-cost capital environment have also contributed to the growth in listing and IPO activity. Direct and indirect foreign investments into KSA have risen significantly, with more international investors participating in public offerings.
Recent geopolitical events that contributed to the global increase in oil prices have bolstered the Saudi economy and prompted investors to seek lucrative opportunities in the region.

What is the Future Outlook?

The outlook for KSA’s listing and IPO market remains positive. There is a strong expectation that the optimism and growth witnessed in 2022 will continue into 2023, with more IPO activity and an increase in the number of listed companies.

The Tadawul Group remains committed to furthering its capabilities beyond what they have already achieved. In 2022, this progress was particularly noteworthy as multiple post-trade upgrades were implemented for the first time ever on the Exchange, in addition to introducing a new Single Stock Futures (SSFs) product on its derivatives market. As a result, we are likely to see more investor interest in listing and IPO activity on the Tadawul exchange as investors become more confident of the market’s potential.

In addition, the number of cross-listings is also expected to increase, with Tadawul hosting its first dual listing of the Americana Restaurants (AMR) in December last year with the Abu Dhabi Securities Exchange (ADX). This follows an agreement in 2019 with ADX to encourage more cross-listings between the two exchanges.

A strong IPO pipeline has been identified, with the potential for even larger offerings than in 2022. The government’s commitment to economic reform and the favourable geopolitical climate will likely sustain investor confidence, making it easier for companies to raise capital through public offerings. Bucking global trends, the outlook for KSA’s listing and IPO market remains promising.

Navigating M&A in KSA: A legal roadmap

Posted on April 3, 2023 - 1:14 pm by perpetual-admin

Mergers and acquisitions (M&A) have become a standard business strategy for companies seeking to expand, diversify or enter new markets. In Saudi Arabia, M&A activity has grown significantly, with the government encouraging foreign investment to promote economic growth and diversification.

M&A transactions in Saudi Arabia are subject to a complex legal framework, and navigating the process can be challenging. A combination of laws and regulations governs the legal framework for M&A. The most significant is the Companies Law, which sets out the requirements for the incorporation, management, and dissolution of companies in Saudi Arabia. Other relevant laws and regulations include the Capital Market Law, the Anti-Monopoly Law, and the Foreign Investment Law.

In addition to these laws, M&A transactions in Saudi Arabia are subject to the rules and regulations of the Capital Market Authority (CMA) and the Saudi Arabian General Investment Authority (SAGIA). The CMA is responsible for regulating the securities industry in Saudi Arabia, while SAGIA is responsible for promoting foreign investment in the country.

The process of an M&A in Saudi Arabia generally involves the following steps:

Due diligence: The acquirer thoroughly analyses the target company to determine its financial, legal, and operational position. This is done to identify potential risks or liabilities associated with the target company.

Negotiation of terms: Once due diligence is complete, the acquirer and target company negotiate the terms of the merger or acquisition, including the purchase price and the transaction structure.

Memorandum of Understanding (MOU): The parties sign a non-binding MOU outlining the key terms of the transaction.

Approval from regulatory authorities: The transaction is subject to approval from regulatory authorities, including SAGIA and the CMA. The parties must submit the required documents to the authorities, including a share purchase agreement, audited financial statements, and other relevant documents.

Shareholders’ approval: The transaction is subject to approval by the shareholders of both companies. A meeting is held to obtain the necessary approvals.

Closing: Once all approvals have been obtained, the transaction is completed. The acquirer pays the agreed-upon purchase price, and the target company’s shares are transferred to the acquirer.

Post-merger integration: After the transaction, the acquirer and target company must integrate their operations. This includes IT systems, combining departments, and restructuring the organisation.

The exact process may vary depending on the nature of the transaction and the companies involved.

M&A in Saudi Arabia is subject to a range of legal requirements that must be carefully considered by the parties involved. Some of the essential legal requirements to consider include the following:

Regulatory approvals: M&A transactions in Saudi Arabia require approval from regulatory authorities, including the Saudi Arabian General Investment Authority (SAGIA) and the Capital Market Authority (CMA). The parties must submit the required documents to the authorities, including a share purchase agreement, audited financial statements, and other relevant documents.

Foreign investment restrictions: Certain industries in Saudi Arabia are restricted or closed to foreign investment. The parties must ensure compliance with these restrictions and obtain any necessary approvals or licenses.

Anti-trust regulations: transactions may be subject to anti-trust regulations, which prohibit anti-competitive behavior. The parties must ensure that the transaction does not result in a dominant market position or otherwise violate anti-trust laws.

Employment laws: M&A transactions may have implications for the employment of staff of the target company. The parties must comply with Saudi Arabia’s employment laws and ensure that staff is treated fairly and appropriately during the transaction and integration process.

Tax laws: The parties must ensure compliance with Saudi Arabia’s tax laws and seek appropriate advice to manage any tax implications of the transaction.

Intellectual property rights: The parties must ensure that any intellectual property rights associated with the target company, such as patents, trademarks, and copyrights, are transferred adequately as part of the transaction.

Contractual obligations: The parties must carefully review any existing contracts or agreements of the target company to ensure that the transaction does not violate any contractual obligations.

It is important to note that the above list is not exhaustive, and the exact legal requirements will depend on the specific circumstances of the M&A transaction. Therefore, it is recommended that the parties seek legal and financial advice to ensure compliance with all applicable laws and regulations.

Suhaib Hammad and Rakesh Bassi have presented a comprehensive analysis and insightful perspectives on strategic mergers and acquisitions in the Saudi Arabian market. Their expertise and acumen in this field are evident in the thought-provoking insights and valuable contributions that this article offers. Should you wish to engage in further discussions or seek clarifications, please reach out to the authors on info@hmco.com.sa

An Insight into Kuwait’s Economic Market

Posted on April 3, 2023 - 2:33 pm by perpetual-admin

Situated at the tip of the Persian Gulf, Kuwait is a small but fascinating oil-rich nation, with a population of just over 4 million people. Before its reinvention as a global oil supplier, it was a busy trade port, connecting merchants and traders between ancient Mesopotamia, Persia, and India. Today, Kuwait is considered one of the most prosperous countries in the Middle East – it has one of the highest GDPs per capita and is a major player in the global oil industry.

It currently holds around 7 percent of the world’s oil reserves and is one of the wealthiest nations in the region. But there is more to modern-day Kuwait than just oil. In this article, we will explore some of the exciting investment opportunities that Kuwait has to offer.

Exploring Kuwait’s Economic Opportunities

There are plenty of reasons why Kuwait should be on the radar of investors. Thanks to its long history of oil production, Kuwait has benefited from a stable economic foundation on which to build further prosperity. Here are some of the economic opportunities Kuwait has to offer:

Infrastructure Development. Kuwait’s government is making enormous investments in infrastructure projects, aiming to build a new subway system and modernize its airport in the coming years.

Oil-backed economy. While Kuwait makes gains in developing other economic sectors, its significant oil reserves provide investors with a stable economic foundation for investment.

Politically stable. Kuwait ranks well in terms of political stability, providing a beacon of security among the turbulent political climates of other countries in the region.

Business-friendly. Kuwait has created a business-friendly atmosphere, with its open economy characteristics, favorable taxes, and an active venture capital market.

Kuwait’s Most Well-Developed Sectors

Kuwait boasts a diversified economy and is home to some of the most innovative start-ups and modern business ventures in the Middle East. The government has made considerable strides towards liberalizing the economy, making it easier to invest and start businesses. Let’s take a look at some of the most profitable opportunities (outside of the oil sector) in Kuwait.

Renewable Energy

With the increasing demand for electricity and the growing threat of global warming, Kuwait has invested heavily in renewable energy sources. With a goal of 15% of its energy needs being supplied by renewable sources by 2030, solar and wind projects are featuring prominently in Kuwait’s energy sector.

Kuwait boasts a flourishing banking sector, making it an attractive option for investors looking to take advantage of its highly competitive financial services industry. Regional and international banking institutions are well-established here, so businesses in the finance domain will find all that they need to explore the market.

Technology

As the government seeks to digitize the nation’s healthcare system and bring its other industries up to international standards, technology and ICT companies are finding excellent opportunities for growth in Kuwait. Cybersecurity, mobile application development, and software development are some of the most in-demand industries in the country.

Real Estate

Although Kuwait is a small nation, demand for housing is beginning to pick up pace. The government has recently started to devote its resources to the development of this sector, creating even more attractive opportunities for investors.

Kuwait’s Trade Relationship with Saudi Arabia

Kuwait and Saudi Arabia have a long history of trade ties, with Kuwait often serving as the gateway to regional markets. The two countries share many cultural and economic similarities, making Kuwait an ideal partner for Saudi businesses and investors.

The United Nations COMTRADE database on international trade has revealed that Saudi Arabia’s imports from Kuwait totaled US$566.55 million in 2021, and in the same year, Kuwait imported US$149.89 Million in goods from Saudi Arabia. KSA primarily imports petroleum-related products, paper, iron, and steel from Kuwait, whereas Kuwait largely imports Saudi dairy products, plastics, and soaps.

Kuwait: A Strategic Investment Hub

For investors with an eye for the Middle East, Kuwait is an obvious choice. With its strong economic fundamentals and strategic location, Kuwait provides investors with a stable opportunity to diversify their portfolios. Non-GCC, foreign-owned companies can own 100% of their subsidiary in Kuwait with approval from the Kuwait Direct Investment Promotion Authority (KDIPA). Alternatively, non-GCC foreign investors may join forces with a local Kuwaiti partner and own up to 49% of the company. There is no double taxation treaty between Kuwait and KSA, however, Gulf nationals are not required to pay corporate or personal income tax in Kuwait. Except for the requirement to retain 5% of the contract or transaction value by entities in Kuwait on payment to any incorporated body (which will be released at the presentation of a tax clearance certificate), Kuwait does not have any other form of withholding tax regime on payments made by residents to a non-resident.