Saudi Arabia doesn't need more IPOs. It needs better ones.

I have been thinking about Saudi IPOs differently lately.

For a long time, one of the numbers that seemed to matter most was how many times an IPO was oversubscribed. Ten times. Twenty times. Fifty times. The bigger the number, the stronger the apparent demand and, by extension, the more successful the offering seemed.

But then I went back and looked at what happened after the companies actually started trading.

Thirteen companies completed IPOs on Tadawul's Main Market in 2025. But fifteen companies began trading during the year, including two whose offerings were completed in late 2024. By year-end, eleven of those fifteen were trading below their IPO price.

That is the number I find more interesting.

Not because one difficult year tells us there is something fundamentally wrong with the Saudi market. It doesn't. But Saudi Arabia increasingly needs its capital markets to do more than get companies listed. It needs them to price businesses properly, give investors reasons to keep participating and eventually help recycle capital into the next generation of companies.

And that makes what happens after an IPO considerably more important than how many times the book was covered before it.

Dar Albalad is a useful example.

The Saudi IT services company listed in May 2026 after its institutional book was reportedly covered 66.6 times. The shares rose more than 28% on their first day of trading.

On the surface, that is exactly what a successful IPO looks like.

But oversubscription needs some context.

It tells us how much demand appeared in the order book. It does not necessarily tell us how much committed capital ultimately wants to own that company at that valuation for the next three or five years.

That distinction became much more obvious with Mutlaq Al-Ghowairi Contracting.

The company completed institutional book building for a large Tadawul offering. Its book was covered multiple times, including at the top of the proposed price range.

The IPO was still withdrawn.

That does not mean those orders were fake. It does, however, tell me that I should be careful about treating a large subscription multiple as evidence that an IPO has been priced correctly.

The parallel Nomu market told the same story — seventeen of twenty-four companies finished 2025 below their offer price.

The real test begins after the shares start trading.

On 22 September, Saudi Arabia's Capital Market Authority opened a consultation on proposed changes to the IPO book-building process.

The proposals are quite technical, but the incentives behind them are worth understanding.

One change would require underwriting agreements to be in place before book building begins. That means the underwriter's commitment to purchase any shares that investors do not take would already exist while the book is being built.

Another would require financial advisers to consider whether large institutional orders are supported by the investor's available liquidity. In other words, the size of an order should bear some relationship to the capital actually available to settle it.

The CMA is also proposing additional forward-looking financial information from issuers, including at least one year of financial projections based on assumptions reviewed by the financial adviser.

None of this sounds particularly exciting.

But market plumbing rarely does.

If the changes make order books more representative of committed capital, improve the information investors receive and give underwriters more reason to care about the quality of an offering, they should improve the IPO process.

They cannot, however, solve the most important question.

A better book-building process does not automatically make a company a good investment.

A business can have excellent management, attractive growth prospects and a strong competitive position and still be a poor investment if I pay too much for it.

That is the part of the IPO conversation I think gets lost when we focus too much on subscription multiples.

An IPO that is 50 times oversubscribed can still be expensive.

An IPO with relatively modest demand can still turn out to be a very good investment.

The subscription number tells me how investors behaved during the offering. It does not tell me what the business is worth.

And ultimately, valuation is what the secondary market will test.

If companies repeatedly arrive on Tadawul at prices that leave very little upside for the investors buying them, those investors will eventually demand a larger discount. Some will simply stop participating.

That matters far beyond the performance of individual IPOs.

One of the things I wrote about recently is how Vision 2030 appears to be moving into a different phase.

The first phase required enormous amounts of capital to establish companies, build industries and create infrastructure.

The next phase increasingly requires something else: capital recycling.

PIF's 2026-2030 strategy reflects that shift. The emphasis is increasingly on investment efficiency, sustainable returns, private-sector participation and bringing external capital into the projects and companies that have been built.

For that model to work, investors need a credible way to exit.

Think about a simplified version of the cycle.

PIF, a founder or private investor puts money into a business. The business grows. Eventually it lists on Tadawul. Public investors buy part of the company, allowing the original investors to realise some of their investment. That capital can then be deployed somewhere else.

There is nothing unusual about this. It is one of the basic functions of a healthy capital market.

But the cycle becomes harder to sustain if the investors at the other end consistently lose money.

If public investors lose confidence, they demand lower IPO prices. If valuations fall, good companies may choose not to list. If credible exit routes become harder to find, private investors have less incentive to provide capital earlier in a company's life.

This is why I don't think Saudi Arabia's IPO challenge should be measured primarily by the number of companies that come to market.

The more important question is whether the market becomes good enough that both companies and investors want to keep using it.

I have not participated in a Saudi IPO since I started this portfolio.

That is not because I am opposed to IPOs. I simply haven't found one where the combination of the business, the valuation and the information available to me gave me enough conviction to participate at the offer price.

I am also perfectly comfortable buying a company after it lists.

There is sometimes an assumption that missing an IPO means missing the opportunity. I don't see it that way.

If I believe I am buying a business that I could own for ten years, I don't need to own it on day one.

I'd rather understand how the business performs as a public company, see how management communicates with shareholders and buy at a price that makes sense to me than participate simply because an offering is heavily oversubscribed.

That is also why the proposed CMA changes interest me.

Anything that improves price discovery, makes order books more meaningful and gives investors better information should make the Saudi market stronger.

But it doesn't remove the work investors have to do.

I still need to understand the business.

I still need to look at the financials.

I still need to decide what I think it is worth.

And I still need enough of a margin between that value and the price I am being asked to pay.

I don't need an IPO to be 100 times oversubscribed.

I need the business to be worth more than the price I am being asked to pay.

If these reforms help Saudi IPO books become more reflective of committed capital, that is progress. The bigger test will come afterwards: whether companies are being priced well enough that investors still want to own them once the excitement of listing day has disappeared.

Because Vision 2030 does not simply need companies that can list.

It needs a capital market investors are willing to come back to.

Sources: Saudi Exchange and CMA disclosures; Saudi Exchange-hosted SEDCO Capital IPO Fund 2025 Annual Report; Argaam IPO Monitor and 2025 IPO review; company offering announcements; PIF 2026-2030 Strategy.

The Quiet Compounder is for educational purposes only and is not financial advice. Always do your own research or consult a licensed advisor before making investment decisions.