Cornerstone Investment Agreement Template for Saudi Arabia
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What is a Cornerstone Investment Agreement?
The Cornerstone Investment Agreement is a crucial document used in Saudi Arabian capital markets transactions, particularly in connection with initial public offerings (IPOs) or significant public share offerings. It serves to secure substantial pre-IPO commitments from strategic or institutional investors, providing stability and confidence to the offering. The agreement must comply with Saudi Arabian laws and regulations, particularly those issued by the Capital Market Authority (CMA), and may need to address Shariah compliance requirements. It typically includes detailed provisions on investment amounts, pricing mechanisms, lock-up periods, regulatory approvals, and closing conditions. This document is especially relevant in the context of Saudi Arabia's Vision 2030 initiative, which encourages private sector participation and capital market development.
About the Cornerstone Investment Agreement
A Cornerstone Investment Agreement is essential for securing pre-IPO commitments from institutional and strategic investors in Saudi Arabian capital markets. This legally binding document establishes the terms under which cornerstone investors commit to purchasing shares during an initial public offering or secondary share offering, providing crucial market stability and confidence to other potential investors.
When do you need this document?
You need a Cornerstone Investment Agreement when your company is preparing for an IPO on the Saudi Stock Exchange (Tadawul) and seeks to secure committed investment from strategic investors before the public offering launches. This document is particularly valuable when you want to demonstrate strong institutional support to retail investors, reduce underwriting risk for investment banks, or when regulatory requirements under the Capital Market Law necessitate minimum subscription levels. Companies often use these agreements during large-scale offerings, cross-border listings involving foreign investors, or when entering volatile market conditions where guaranteed investment provides essential stability.
Key legal considerations
Your Cornerstone Investment Agreement must include specific investment commitment details, including the exact amount, share allocation methodology, and pricing determination mechanism tied to the final IPO price. Lock-up provisions are critical, typically restricting cornerstone investors from selling shares for 6-12 months post-listing to maintain market stability. You must clearly define conditions precedent, such as regulatory approvals from the Capital Market Authority, successful completion of the offering roadshow, and achievement of minimum subscription thresholds. The agreement should address potential scenarios including offer withdrawal, pricing adjustments, and allocation reductions. Risk disclosure requirements mandate comprehensive information sharing about the company's financial position, business risks, and market conditions that could affect the investment.
Legal requirements in Saudi Arabia
Under the Capital Market Law (Royal Decree No. M/30) and CMA regulations, your Cornerstone Investment Agreement must comply with specific disclosure and reporting requirements for securities offerings. The agreement must align with the Rules on the Offer of Securities and Continuing Obligations, particularly regarding cornerstone investor identification, investment terms disclosure, and lock-up period specifications. Foreign cornerstone investors must comply with the Foreign Investment Law (Royal Decree No. M/1), including obtaining necessary investment licenses and meeting permitted activity requirements. The document must address Shariah compliance considerations if required by the company's Articles of Association or applicable regulations. Additionally, you must ensure proper coordination with underwriting agreements and prospectus disclosures to maintain consistency across all offering documentation and meet CMA transparency standards.
GOVERNING LAW
Applicable law
This Cornerstone Investment Agreement is drafted to comply with Saudi Arabia law. Key legislation includes:
Companies Law (Royal Decree No. M/3): Fundamental law governing company formation, operation, and corporate governance in Saudi Arabia. Relevant for investment structuring and shareholder rights.
Foreign Investment Law (Royal Decree No. M/1): Regulates foreign investment in Saudi Arabia, including investment licenses and permitted activities for foreign investors.
Rules on the Offer of Securities and Continuing Obligations: CMA regulations detailing requirements for securities offerings, including specific provisions for cornerstone investors and lock-up periods.
Competition Law (Royal Decree No. M/75): Relevant for large investments that might trigger merger control or competition review requirements.
Anti-Money Laundering Law (Royal Decree No. M/20): Compliance requirements for significant investments and transfer of funds, including KYC obligations.
CMA Listing Rules: Specific requirements for companies listing on the Saudi Stock Exchange (Tadawul), including provisions affecting cornerstone investors.
Investment Funds Regulations: Relevant if the cornerstone investor is an investment fund or if the investment involves fund structures.
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