​The Capital Market Authority (CMA) and the Saudi Stock Exchange "Tadawul" will apply the Instructions and Procedures related to Listed Companies with Accumulated Losses Reaching 50% or more of its Capital early this July, CMA stated in a press release issued yesterday. The procedures come under CMA’s efforts to develop the capital market and reduce risks related to securities transactions. In addition, it organizes the mechanism related to dealing with listed companies with accumulated losses reaching 50% or more of its capital. The procedures also aim to enhance the protection of investors.

The instructions and procedures apply to three categories of listed companies.  The first category is companies with accumulated losses reaching 50% or more and less than 75% of its capital. The second category is companies with accumulated losses reaching 75% or more and less than 100% of its capital. The third category is companies with accumulated losses reaching 100% or more of its capital.

The procedures state that companies must immediately announce on the Tadawul website when its accumulated losses reach 50% or more and less than 75% of its capital, due to its financial results or an event that led to such losses. The announcement should include the total accumulated losses, its percentage of the capital and the reasons that led to such losses. The announcement should also mention that these instructions and procedures would be applicable to the company. Following the announcement, Tadawul suspends the trading of the shares for two hours succeeding the opening of the market. Tadawul adds an indicator next to the company’s name on its website to indicate that it falls under the first category (accumulated losses reaching 50% or more and less than 75%). The company, during this category, is required to publish monthly management financial statements. If the company reduces its losses below 50%, it should immediately announce it on the Tadawul website and attach with the announcement the external auditor’s report on the balance sheet. Consequently, Tadawul suspends the trading of the shares for two hours succeeding the opening of the market and removes the indicator next to the company’s name.

The procedures state that companies must immediately announce on the Tadawul website when its accumulated losses reach 75% or more and less than 100% of its capital. Similar to the first category, the announcement should include the total accumulated losses, its percentage of the capital and the reasons that led to such losses. The company's announcement must mention that all the procedures will be applicable to the company and that its shares would be suspended from trading for one day only.  Tadawul adds an indicator next to the company’s name which indicates that it falls under the second category. Following removal of the one day suspension, settlement of trade orders will be prolonged to two business days (ie T+2). The company, during this category, is required to publish monthly management financial statements and prepare a plan to rectify the situation and announce it to the shareholders within 90 calendar days from the date of the company’s accumulated losses announcement. In addition, the company must form a committee with at least three members - including a member of the Board of Directors – which is responsible for implementing the plan and informing the company’s board of directors of any related updates. The company must also announce quarterly to the public the details of the plan implementation including the disclosure of the quarterly and annual financial forecasts compared to the actual quarterly and annual financial statements. If the company incurs operating profits and positive operating cash flows for the second financial year according to the audited financial statements as well as reduce its accumulated losses below 75%, Tadawul deletes the indicator and the company returns to normal trading. The company must complete two financial years in T+2 trading phase before returning to normal trading, even if it rectifies its situation during the two years.

Companies in the second category with accumulated losses reaching 75% or more and less than 100% its capital face delisting from the market if they do not announce a plan to rectify their situation within 90 calendar days from the announcement of the losses or if two years elapse without any success in reducing the losses below 75% or generating operating profits and positive operating cash flows. In such cases, the company is delisted after 30 days with the option of trading its shares over the counter (OTC).

The procedures state that companies must immediately announce on the Tadawul website when its accumulated losses reach 100% or more of its capital The announcement should include the total accumulated losses, its percentage of the capital and the reasons that led to such losses. The announcement must also mention that all the procedures would be applicable on the company. Following the announcement, Tadawul adds an indicator next to the company’s name on its website and suspends the company’s shares from trading.

However, the company can elect for over the counter trading (OTC), subject to the OTC regulation requirements. During the period in this category , the company must prepare a plan to rectify its situation and announce it within 90 calendar days from the date of the announcement of its accumulated losses. It also must publish monthly management financial statements. In addition, the company must form a committee with at least three members - including a member of the Board of Directors – which is responsible for implementing the plan. The committee also reports to the company’s board of directors of any related updates. The company must also announce quarterly to the public the details of implementing the plan, including the disclosure of the quarterly and annual financial forecasts compared to the actual quarterly and annual financial statements.

A company with accumulated losses 100% or more will stay in this category for two financial years. If the company incurs operating profits and positive operating cash flows for the second year according to the audited financial statements as well as reducing its accumulated losses below 75%, Tadawul deletes or changes the indicator next to the company’s name on Tadawul’s website. The indicator is deleted if losses are less than 50% of the capital or it will change in accordance with the range where the losses occur.

The third category companies can be delisted from the market in two scenarios:  First, if the company does not announce a plan to fix its financial position within 90 calendar days from the date of the accumulated loss announcement.  Second, if two years elapse without decreasing the accumulated losses below 75% or generating operating profits and positive operating cash flows for the second year. The delisting is done after 30 days (in both cases) with the option to elect trading the company’s shares over the counter (OTC)
Companies that fall in the second and third categories must include a plan to rectify their financial situation after the indicator is visible next to their names on Tadawul’s website. In addition,  a description of the company’s position and how it is affected by the relevant market sectors, should be included as well as the reasons behind the company’s losses and the detailed steps of the plan.

Companies that fail to announce, in a separate announcement, reaching accumulated losses of 50% or more of its capital (applicable to all categories) or reducing accumulated losses below 50% of its capital, will face suspension of trading of their shares until such announcement is made.