Saudi stock market Nomu poised for listings flurry

• Small and mid-sized firms go public
• Nomu lists 79 businesses
• 41 additional applications

Saudi Arabia’s lower-tier stock market, Nomu, is poised for a further flurry of new listings this year as an increasing number of the kingdom’s small and mid-sized companies opt to go public to raise money and improve corporate governance standards.

Since launching in 2017, Nomu, which means growth in Arabic, has swelled to 79 listed businesses.

“Conceptually, it makes a lot of sense to have a secondary market that allows smaller, newer companies to raise equity capital,” says Akber Khan, acting chief executive officer of Al Rayan Investment in Doha.

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In December, the market regulator revealed that a further 41 companies had applied to join the market, either via direct listings or initial public offerings.

Listing requirements for companies joining Nomu are less onerous compared with Saudi Arabia’s main market. For example, companies must publish annual, rather than quarterly, financial results.

Nomu businesses must also have a minimum market capitalisation of SAR10 million ($2.7 million), have been operational for at least one year and list at least 20 percent or SAR30 million of their shares.

Nomu provides an opportunity for wealthy individual and institutional investors to buy into early-stage companies with vast growth potential as well as achieve greater sector diversification away from the main market’s blue-chip stocks which are mostly banks and hydrocarbon-related companies.

The performance of Nomu’s top companies underlines this potential, with four of the 10 biggest having made triple-digit percentage gains since listing.

As of February 7, the combined market capitalisation of Nomu’s 79 listed companies was SAR 49.3 billion – up from SAR 35.1 billion at the end of 2022.

Up 4.9% in 2024

Nomu’s index ended February 7 at 25,720 points, up 4.9 percent this year. It gained 26.3 percent in 2023, bourse data shows, although annual turnover was SAR 8.1 billion in 2023, down 40 percent versus 2022, according to financial news portal Argaam.

Overall, 29 companies had more than 20 trades on February 7, with the most active – Future Care – attracting 624. Fourteen companies drew no trading at all and a further 36 stocks had 20 or fewer transactions.

Subdued activity remains a challenge for Nomu, and the spread between the bid and ask prices for a Nomu stock was substantially greater than for companies on Saudi Arabia’s main market.

Virtuous circle

Ordinary retail investors cannot trade stocks on Nomu, which is restricted to qualified individual investors and institutions. Individuals must possess recognised trading certifications and have net assets of at least SAR 5 million.

Al Rayan's Khan says: “Some stocks have very little, or even zero, trading liquidity, so although the companies were able to raise capital, their shares are now difficult to buy or sell. But that would be a feature from this kind of market.”

Low trading may also mean some companies’ stocks may be undervalued, although the large number of companies listed on Nomu is creating a virtuous circle which encourages even more businesses to follow.

“Many otherwise would have stayed private because going public is a transformational decision requiring major changes in many areas including corporate governance, ownership control, disclosure and transparency,” adds Khan said.

Companies must be members of Nomu for two years before they can apply to upgrade to the main index and gain exposure to a far greater number of investors.