Grant Inquiry: Everything You Need to Know About Free Shares in the Saudi Market

A grant in the context of the Saudi financial market refers to the allocation of free shares to current shareholders without any additional cash payment. This is done by converting part of the company's reserves (often from retained earnings or statutory reserves) into capital, and then distributing additional shares to shareholders at a specific ratio (such as one free share for every two held). This process is a form of dividend in kind and is typically used when a company achieves strong profits and has surplus reserves. The aim is to incentivize shareholders and boost their confidence in the company, as well as to increase market liquidity.

The key difference between a grant and a rights issue is that grants are only given to existing shareholders, while rights issues require cash subscription from shareholders. Grants also differ from stock splits, as the latter only changes the nominal value of the share without increasing capital or injecting new liquidity. Grant decisions are usually issued by the general assemblies of listed companies after approval from the Capital Market Authority, with details announced on Tadawul and Edaa platforms. Thus, grants are an important financial and strategic tool in capital management and achieving growth objectives for listed companies.

The process of granting free shares in the Saudi market follows strict legal and regulatory steps. It begins with the company's board of directors approving a proposal to distribute the grant based on strong financial results and sufficient reserves. The proposal is then submitted to the extraordinary general assembly for official approval. Afterward, the company announces the grant details on the official Tadawul platform, specifying the grant ratio, eligibility date, and share distribution date.

There are several reasons for issuing grants, most notably: strengthening capital without depleting cash liquidity, rewarding shareholders for their trust, attracting new investors by increasing share liquidity, and improving the company's market image. A grant may also reflect management's confidence in the company's future and profit growth, especially if linked to strong financial results. Importantly, the grant does not affect shareholders' ownership percentages, as all receive the same proportion of new shares.

The grant process is subject to careful procedures by the Capital Market Authority to ensure proper disclosure and protection of shareholders' rights, with all relevant information published well before the assembly meeting. Once approved, the new shares are automatically credited to shareholders' portfolios via Edaa without any further action required from investors.

There are several modern electronic methods to inquire about grant eligibility in the Saudi financial market. First, investors should monitor official announcements on the Tadawul platform, where listed companies disclose all grant details, including eligibility date and distribution ratio. After the general assembly is held and the grant decision is approved, the record date is set, determining eligible shareholders.

To inquire practically, investors can log in to their investment account with their financial broker or bank, where grant details appear in account statements or special notifications. Most banks and brokerage firms send automatic alerts via SMS or email when free shares are deposited into the portfolio. Additionally, investors can access the Edaa Securities Depository portal to view share balances and entitlement dates.

Other platforms, such as investment apps and financial regulatory portals, offer easy inquiry tools that allow users to check grant details by entering their ID number or investment portfolio number. It's important to regularly monitor these channels, especially after a company announces a share grant, to ensure all rights are claimed and no grants are missed due to lack of follow-up or outdated information.

A shareholder is eligible for the grant shares if they own the shares subject to the grant before the record date officially announced by the company. This means the shareholder must have the shares in their portfolio by the end of the business day preceding the announced record date, and the shares must not be subject to any liens or restrictions preventing their transfer.

Companies usually send advance notifications via Tadawul and media channels about the general assembly and the actual eligibility date. After the assembly and grant approval, the shareholder register is locked at Edaa on the specified day, and shareholders recorded at that time automatically receive their share of free shares. It is important to note that trading shares on or after the record date does not entitle the new buyer to the grant; the grant remains with the previously registered shareholder.

There are typically no additional financial or administrative conditions for the investor other than owning the shares at the right time, with a need to ensure portfolio and ID data are updated with the broker or Edaa to avoid any issues in receiving the grant.

The share price is subject to a theoretical adjustment immediately after the grant is distributed. The calculation aims to maintain the total market value of the portfolio unchanged, as the share price is reduced proportionally to the increase in the number of shares. The standard formula is:

New share price = (Share price before grant × Number of old shares) ÷ (Number of shares after grant)

Practical example: If the share price before the grant is 30 SAR, and the company announces a grant of one free share for every two held (a 50% grant ratio), the number of shares after the grant increases by 50%. Thus, the new share price will be (30 × 2) ÷ 3 = 20 SAR approximately. This ensures that the investor's total share value remains essentially unchanged, except for any market-driven price movements after the grant.

It is important to note that this calculation is theoretical, and the actual price may change according to market trends and trading activity, but trading usually begins at the adjusted price on the next business day after the grant distribution.

Grant, cash dividends, and stock split are different financial concepts, although they overlap in some aspects. A grant means distributing free shares from the company's reserves to shareholders, increasing the number of shares but not adding cash liquidity to the shareholder. Cash dividends, on the other hand, mean paying part of the company's profits directly to shareholders, increasing their actual liquidity.

A stock split means dividing one share into several smaller shares with a lower nominal value, without increasing capital or granting new shares from reserves. The goal of a split is usually to make the share more attractive to small investors and increase its market liquidity.

Grants affect capital and the total number of shares, reflecting the company's financial strength, while cash dividends directly impact the shareholder's cash position, and splits do not change capital but focus on facilitating trading and increasing share appeal. Understanding these differences is essential for investors to make decisions that align with their investment goals.

The Saudi Capital Market Authority plays a pivotal role in regulating and monitoring free share grants. The Authority requires listed companies to follow clear and transparent procedures in announcing grants, including disclosure of grant details, distribution ratio, eligibility date, and ensuring this information reaches all shareholders through official platforms such as Tadawul and Edaa.

The Tadawul electronic platform is the primary source for company announcements about grants, publishing all documents and disclosures related to general assemblies, grant distribution decisions, and financial disclosure reports. Tadawul also offers a 'Member Notifications' feature, allowing investors to receive instant alerts about any decisions related to distributions and grants.

The Authority closely monitors companies' compliance with regulations and requires them to update capital data with Edaa after each grant process. It also ensures that distributions are carried out according to the announced schedule and follows up on investor complaints or inquiries to guarantee transparency and fair distribution of rights. All these measures enhance investor confidence in the Saudi market and encourage greater investment participation.

After a grant is distributed, investors notice an increase in the number of shares they own in the company, but their ownership percentage remains unchanged, as all shareholders receive the same grant ratio. For example, if you own 1,000 shares in a company that announces a 50% grant, you will receive 500 additional shares, making a total of 1,500 shares, with your relative ownership stake remaining the same.

The portfolio's value theoretically does not change immediately after the grant, as the decrease in share price offsets the increase in the number of shares. However, the actual portfolio value may later be affected depending on the market's reaction to the grant, with the share price potentially rising or falling based on supply, demand, and trading activity.

It is important for investors to understand that a grant is not an immediate cash profit, but a means to strengthen capital and redistribute reserves. Therefore, they should monitor share performance after the grant and assess their investment strategies in line with changes in ownership structure and market value.

The financial sector, including banks and brokerage firms, plays a key role in facilitating grant inquiries for investors. Most financial institutions offer electronic platforms or smart applications that allow investors to track all changes in their portfolios, including the receipt of free shares as soon as they are added.

Banks and brokers send automatic notifications to clients when important changes occur, such as grant distributions, and provide dedicated customer support for inquiries about distribution details. Additionally, investors can contact the Edaa Securities Depository directly to inquire about share balances and entitlement dates.

Thanks to technological advancements in the Saudi financial sector, investors can now obtain accurate information about grants instantly through multiple channels, making it easier to track entitlements and make investment decisions based on reliable and up-to-date data.

In recent years, the Saudi financial market has witnessed significant developments in the mechanisms for regulating and distributing grants. The Capital Market Authority has issued several regulatory updates aimed at enhancing transparency and ease of access to information. These updates include requiring companies to publish grant details and disclosures well before the general assembly and improving communication channels with investors.

The Tadawul electronic platform has launched instant notification features, and the Edaa platform has provided advanced electronic services for inquiring about balances and entitlement dates. Thanks to these developments, investors can receive automatic notifications about any grant or distribution via SMS or email, in addition to tracking all distribution details through their investment accounts or the Edaa portal.

These technological and regulatory advancements have increased investor confidence in the market and contributed to a rise in the number of participants in self-inquiry grant programs, with the number of users of electronic services dedicated to this purpose reaching nearly 100,000 by the end of Q1 2025.

Grants are not necessarily a high-risk decision for investors or companies, but they do require some analytical considerations. On the benefit side, shareholders receive additional shares at no cost, which may boost their confidence and increase share liquidity in the market. Grants also allow companies to raise capital without a cash subscription or additional financial commitment.

On the other hand, grants may dilute earnings per share if the company's profits do not grow in line with the increase in the number of shares. The decrease in nominal share price after a grant may also create a temporarily negative impression among some investors, even though the total market value of the investor's portfolio theoretically remains unchanged.

It is important for investors to evaluate the company's financial performance and future growth before making decisions related to grants. They should also follow official disclosures and understand the actual impact of grants on their share value and ownership structure.

By the first half of 2024, total cash dividend distributions in the Saudi financial market exceeded SAR 100 billion annually, while the value of free shares granted (grants) reached nearly SAR 10 billion, distributed among several listed companies. This figure reflects an increased pace of companies using grants as a shareholder reward tool, especially those with strong financial reserves.

Some sectors, such as petrochemicals, energy, and banking, have seen growing interest in issuing share grants amid strong profits and financial stability. The Capital Market Authority has also launched a series of technical and regulatory measures to increase transparency and facilitate the grant inquiry process, resulting in a higher number of investors benefiting from dedicated electronic services.

These statistics highlight the importance of monitoring grant announcements in the Saudi market and the need for investors to understand all legal and financial aspects associated with grants to ensure their rights and maximize the benefits of available grant opportunities.

There are many questions about grants, including: What is a grant and how does it differ from cash dividends? How do I check if I have received grant shares? What are the conditions for receiving a grant? How is the share price adjusted after a grant? Are grants subject to tax? What are the associated risks? These and other questions are answered in detail in the FAQ section below.