Parallel Market in Saudi Arabia: Your Guide to Growth and Opportunities

The Parallel Market, known as Nomu, is a secondary market launched by the Saudi Capital Market Authority in collaboration with the Tadawul Exchange in March 2017. The establishment of the Parallel Market was a strategic step to support small and medium enterprises that often face challenges in obtaining financing from the main market due to stricter listing requirements. The Parallel Market allows these companies to access new capital by selling a portion of their shares to the public, while committing to clear and organized disclosure rules, but with less stringent listing and registration standards that suit the nature of startups and medium-sized companies.

The goals of the Parallel Market can be summarized as follows: expanding the base of listed companies in the Saudi financial market, raising the level of transparency in the private sector, encouraging entrepreneurship and national projects, and increasing the contribution of startups to the GDP. The market also seeks to provide a new investment platform for individual investors and small institutions, supporting the Kingdom's plans to diversify the local economy and reduce dependence on oil by promoting the growth of non-oil sectors.

Listing in the Parallel Market is subject to a set of conditions designed to facilitate the entry of small and medium enterprises while maintaining an acceptable level of transparency and investor protection. Among the most prominent of these conditions:

1. Capital: The company's registered capital must not be less than 10 million Saudi Riyals.
2. Offering Ratio: The company must offer at least 20% of its shares for free float; this is lower than the required ratio in the main market (30%).
3. Operational Record: The company is usually required to have an operational record of at least 3 years, with the possibility of exempting some promising or innovative companies at the authority's discretion.
4. Financial Disclosure: The company must periodically disclose its financial data according to International Financial Reporting Standards (IFRS), and provide quarterly and annual reports on its financial and operational performance.
5. Governance: Compliance with governance and transparency rules, and appointing an independent financial advisor during the initial listing period.

These conditions provide greater flexibility for startups to face financial and administrative challenges while ensuring a minimum level of protection for investors. The Capital Market Authority also seeks to continuously update these conditions in response to market developments and feedback from companies and investors.

The Parallel Market (Nomu) has witnessed notable activity in recent years, with an increasing number of listed companies and a diversity of sectors represented. According to the latest official data:

- By the end of 2023, the number of companies listed on Nomu reached approximately 70, with expectations to rise to 75 companies by the end of 2024, and reach 80 companies in 2025.
- The total market capitalization of Nomu companies exceeded 16 billion Riyals by the end of 2023, with expectations to surpass 20 billion Riyals in 2024.
- The average daily trading volume gradually increased, reaching several million shares daily at the beginning of 2024, with a daily trading value exceeding 150 million Riyals.
- The Nomu All Share Index, which reflects the performance of the Parallel Market, recorded cumulative growth between 10-15% by the end of the second quarter of 2024, reflecting the recovery of the startup and medium-sized company sector.
- The market witnessed several successful initial public offerings in 2024, with 5-6 companies offering their shares for subscription with a total value exceeding 500 million Riyals, indicating investor confidence and the development of the business environment.

These figures reflect the vitality of the Nomu market and its increasing role in supporting new and innovative sectors, alongside diversifying the Saudi economy.

Despite the simplified listing requirements, the Parallel Market imposes strict obligations on listed companies regarding financial disclosure and governance. Companies are required to publish quarterly and annual performance reports that include the balance sheet, income statement, and cash flow statement, along with disclosures about significant events that may affect the company's performance or stock price.

These measures aim to enhance transparency and protect investors from risks associated with startups, which may face greater fluctuations in profits or sudden operational challenges. It is also required to appoint an independent financial advisor during the initial listing period to ensure compliance with market standards and assist the company in meeting disclosure requirements.

Good governance is a key factor in attracting investors and enhancing their confidence, as it affects the company's valuation and investment decisions. The Capital Market Authority monitors compliance with disclosure, and may take actions such as suspending trading or imposing fines in case of significant violations.

The Parallel Market offers significant investment opportunities for investors looking to diversify their portfolios and support emerging national companies. Among the most notable advantages:

1. Rapid Growth: Listed companies are often in early stages of development, giving them high growth potential compared to established large companies.
2. Investment Diversification: Nomu allows entry into new sectors such as technology, services, and light industries, helping to reduce risks through asset diversification.
3. Supporting the National Economy: Investing in the Nomu market means supporting local projects and contributing to achieving Vision 2030.
4. Attractive Listing Prices: Sometimes, startup valuations may be lower than their counterparts in the main market, providing investors with opportunities for rewarding returns if the company succeeds.

However, it should be noted that the Parallel Market is also characterized by higher volatility and relatively lower liquidity, necessitating careful consideration before making any financial decision.

Despite the significant opportunities offered by the Parallel Market, it carries a set of challenges and risks that investors should be aware of:

1. Price Volatility: As companies are small or emerging, their stocks may experience sharp rises and falls due to minor changes in performance or news.
2. Low Liquidity: Investors may face difficulties in selling their shares quickly and without significantly impacting the price.
3. Operational Risks: Startups may face challenges in managing operations or developing products, which may negatively affect profits and stock prices.
4. Limited Disclosure: Despite regulatory requirements, some companies may suffer from weak disclosure or delays in publishing financial reports.
5. Management Experience: Management teams in small companies may lack the necessary experience to manage rapid growth or deal with financial market requirements.

Investors are always advised to review periodic reports and carefully analyze operational and financial aspects before making any decisions, and to consult a licensed financial advisor.

The cement sector is one of the key sectors in the Saudi economy, supported by massive infrastructure projects and government initiatives such as NEOM and Qiddiya, as well as urban expansion in major cities. The increasing demand for cement drives companies to expand their production capacities and diversify their products.

Several dynamic factors control this sector:
- Local Demand: Driven by the growth of the real estate sector, government housing projects, and infrastructure expansions.
- Operational Costs: Energy and fuel prices are among the most important cost elements, and any changes in them directly affect profit margins.
- Geographic Competition: Each company targets specific areas, with strong competition in the central, western, and northern regions, affecting pricing policy and market share.
- Government Support: Includes incentives for local industry and incentives for adopting modern technologies and reducing environmental emissions.
- Export Trends: Although the local market is the largest, some companies seek to export to neighboring regional markets, facing challenges in marketing and logistics.

The Saudi market includes several major companies such as Yanbu Cement, Riyadh Cement, Eastern Cement, and Qassim Cement, alongside Hael Cement (3001), each enjoying competitive advantages in their business areas.

Hael Cement Company (Symbol: 3001) is one of the leading companies in the building materials sector in the Saudi market. The company was established to meet the growing demand for cement in the northern and central regions and enjoys advanced production capabilities and a strategic location connecting it to major projects in those areas.

Key points about the company:
- Stock Price: Typically ranges between 50 and 60 Saudi Riyals according to the latest updates in 2024.
- Market Capitalization: Estimated at several billion Riyals based on the number of shares and stock price (it is advisable to check the stock page on Tadawul for updates: /stocks/3001/).
- Price-to-Earnings Ratio: Usually in the range of 12 to 18 times depending on the company's results and profit fluctuations.
- Dividend Yield: Ranges between 5% and 7% of the stock price annually, making it attractive for investors seeking dividend income.
- Recent Developments: The company announced expansions to increase production capacity by up to 25% in 2024, focusing on improving operational efficiency to cope with rising fuel costs.
- Financial Performance: The company has shown stability in revenues despite market challenges, with future plans to increase market share and expand operations.

For more details about the company's performance and stock developments, visit the stock page on Tadawul: /stocks/3001/.

There are several fundamental differences between the Parallel Market (Nomu) and the main market in the Saudi financial market:

- Listing Requirements: The main market requires a higher capital (usually 100 million Riyals or more), and a minimum offering ratio of 30%, along with a longer operational record.
- Size of Companies: Companies in Nomu are smaller and more focused on innovation or emerging sectors.
- Liquidity: The main market is more liquid, while Nomu may experience fluctuations in liquidity and trading activity.
- Disclosure and Governance: Despite similarities in basic rules, Nomu offers companies greater flexibility in some regulatory aspects, while still maintaining oversight from the authority.
- Indices: Each market has its own indices, and the performance of Nomu can be compared to the main market index (TASI) to track differing investor trends.

The Parallel Market serves companies seeking rapid growth and attracting investors who believe in their vision, while the main market targets stable companies with a long history.

The year 2024 witnessed continued momentum in the Nomu market with the listing of new companies from the technology, financial services, and light industries sectors. These listings contributed to increasing the number of listed companies and encouraging investors to diversify their portfolios.

From a regulatory perspective, the Capital Market Authority announced more flexibility in listing requirements to attract innovative and very small companies, while maintaining basic disclosure and governance requirements. The government also launched tax incentives and facilities for foreign investors, contributing to an increase in the volume of subscriptions and boosting investor confidence.

The market also saw initiatives to raise financial awareness among investors and improve the digital infrastructure for trading operations, enhancing market liquidity and supporting its sustainable growth.

The Parallel Market has its own index known as the Nomu All Share Index, which reflects the aggregate performance of the listed stocks in Nomu. The index recorded growth of 10-15% in the first half of 2024, a rate close to the growth of the main market index (TASI) during the same period.

The fluctuations of the Nomu index are often higher than TASI due to the nature of small companies and their faster response to news and economic events. However, the growth of the index in recent years reflects the increasing interest from investors in startups and innovative companies, especially in the technology and industrial sectors.

Monitoring the Parallel Market indices helps investors understand general trends and evaluate the performance of their portfolios compared to other market indices.

The Saudi government plays a pivotal role in supporting the Parallel Market through encouraging policies and various initiatives:

- Tax Incentives: Offering exemptions or tax facilities to attract companies to list in Nomu.
- Facilitating Foreign Investor Entry: Through issuing special visas and granting foreign investors the right to invest in listed companies under specific regulations.
- Supporting Entrepreneurship: Financing programs and business incubators that help startups grow and prepare for listing.
- Developing Regulatory Laws: Continuously updating regulations to keep pace with global market developments and meet the needs of small companies.

These initiatives contribute to enhancing the attractiveness of the Parallel Market and attracting more local and foreign capital, positively impacting the macro economy and diversifying national income sources.

The trading process in the Parallel Market is not much different from the main market, where individual and institutional investors can open trading accounts through licensed brokerage firms. After opening the account, investors can buy and sell shares listed in Nomu during official trading hours (usually from 9:30 AM to 3:00 PM).

The market allows placing buy and sell orders through electronic platforms, with the ability to track prices and indices in real-time. It is important to note that some stocks in Nomu may exhibit lower liquidity and higher volatility, requiring precise risk management.

Investors should review periodic disclosures and financial reports for each company before making trading decisions, and utilize the analytical tools available on the Tadawul website and specialized financial analysis platforms.

With the ongoing economic developments in the Kingdom and government support for small and medium enterprises, the Parallel Market is expected to continue its growth and become a key platform for financing innovation and entrepreneurship.

Vision 2030 aims to increase the private sector's contribution to GDP and enhance the diversification of the national economy. The Parallel Market plays a pivotal role in achieving these goals by:
- Providing direct financing to startups without the need for traditional bank loans.
- Encouraging investors to diversify their portfolios and support local projects.
- Raising the level of transparency and disclosure in the private sector.

With the increasing listings and improved legislation, the Parallel Market is expected to witness further growth in the number of listed companies, market capitalization, and trading volume, becoming one of the pillars of the Saudi financial market in the future.