Convertible Debt Agreement Template for Saudi Arabia

A Convertible Debt Agreement is a specialized financing document that allows you to raise capital through Shariah-compliant debt instruments that can convert into equity shares at predetermined conditions. Under Saudi Arabian law, this agreement must balance commercial financing needs with Islamic finance principles, making it particularly suitable for companies seeking growth capital while maintaining religious compliance.

When do you need this document?

You need this agreement when your company requires immediate funding but cannot agree on current valuation with investors. This situation commonly arises during bridge financing rounds, when preparing for larger equity raises, or when market conditions make valuation challenging. The document is also essential when foreign investors want to participate in Saudi companies while ensuring compliance with Foreign Investment Law requirements. Startups and growth-stage companies frequently use convertible debt to access capital quickly while preserving equity for future strategic rounds.

Key legal considerations

Your agreement must include Shariah-compliant profit mechanisms instead of conventional interest rates, typically structured as profit-sharing or asset-backed returns. Conversion terms require careful drafting to specify triggering events such as future equity rounds, company sales, or performance milestones. You must include detailed investor protection clauses covering information rights, board representation, and anti-dilution provisions. The document should address default scenarios, acceleration rights, and dispute resolution mechanisms. Corporate governance provisions must align with Saudi Companies Law requirements, including board composition and shareholder approval processes. Currency and cross-border payment terms need special attention if involving foreign investors.

Legal requirements in Saudi Arabia

Under the Saudi Companies Law (2015), your convertible debt structure must comply with capital formation regulations and share issuance procedures. The Capital Market Authority requires registration and disclosure for certain convertible instruments, particularly those involving public offerings or institutional investors. Your agreement must incorporate Shariah Advisory Board approval for the profit structure and overall transaction framework. Foreign Investment Law compliance is mandatory when international investors participate, including ownership percentage restrictions and sector-specific limitations. The Banking Control Law governs certain aspects of the lending relationship, while CMA regulations address securities law compliance. You must ensure proper documentation with the Ministry of Commerce for corporate registration updates and maintain records that satisfy both civil law requirements and Islamic finance standards.