Morabaha Marina Financing announces its intention to ‎proceed with an IPO on Saudi main market ‎

MRNA, a fully independent NBFI, today announces its intention to proceed with an initial public offering of its ordinary shares on the Saudi Exchange’s Main Market. On 26 December 2022G, the CMA approved the Company’s application for the initial public offering of 21,428,572 Offer Shares, representing 30% of the Company’s issued share capital post capital increase, by way of a primary issuance. The final offer price of the Offer Shares will be determined at the end of the book-building period.

The planned IPO marks another major milestone in MRNA’s continued growth and transformation. In the past 12 months, the Company has acquired Digital Payments Company for FinTech (“Loop”), a digital payments technology and services provider, and undertaken a company rebranding to “MRNA”, which crystalizes its core values and culture as a Saudi business, while supporting its ambitious long-term vision for its financing activities and its sector.

Abdulrahman Mohammed Al-Ghumlas, Chairman of MRNA, commented: “Today is a proud day for MRNA as we take this significant, milestone step on our journey. The IPO provides an attractive opportunity for investors to participate in a sector that continues to grow from strength to strength. With both social and macroeconomic tailwinds that support our accelerating growth, this is an exciting time to be inviting investors to share and invest in our onward journey of success.”

Waleed Al-Ghumlas, Managing Director of MRNA, said: “We are pleased to announce the start of our IPO process, an exciting moment for MRNA. Since inception in 2012G, we have achieved continuous growth and strong financial performance; with net Islamic financing receivables amounting to SAR 1.0 billion as of 30 June 2022G. In April of last year, we increased our capital from SAR 311.4 million to SAR 500.0 million, a milestone made possible by the dedication and support of our management team, our Board and our current shareholders. Building on our strong track record in providing a wide range of financing solutions to individuals and SMEs, our IPO will accelerate our growth plans through additional finance capacity, and support our goal to enable the development of an integrated financial ecosystem in line with Saudi Vision 2030.”

The Company and its Business Activities

MRNA is a leading independent NBFI in the Kingdom, offering a wide range of innovative and flexible Shari’ah-compliant financing solutions to both individuals and SMEs. The Company offers its solutions through Ijarah, Tawarruq and Murabaha products.

Established in 2012G, MRNA offers financing solutions through its network of 16 branches located in 13 cities in the Kingdom, in addition to its head office in Riyadh. The Company also relies on a multi-channel distribution model through a network of partners, including Saudi Post and Riyad Bank, as well as the SME funding portal developed by the General Authority for Small and Medium Enterprises (Monsha’at).

The Company is developing advanced digital channels to facilitate the full credit cycle through its website and mobile application.

In the first half of 2022G, MRNA announced the acquisition of an 80% stake in Loop, the digital payments technology and services provider, licensed by the Saudi Central Bank.

As of 30 June 2022G, the Company had 171 employees in the Kingdom, and Loop had 14 employees.

As of 30 June 2022G, the Company’s total assets were SAR 1.2 billion, including net Islamic financing receivables of SAR 1.0 billion. Shareholders’ equity amounted to SAR 535.8 million. Special commission income for the six-month period ended 30 June 2022G was SAR 77.4 million, while total comprehensive income for the period was SAR 26.4 million and basic and diluted earnings per share amounted to SAR 0.55.

Key Investment Highlights

Strategy

The Company has set key strategic objectives based on its strengths and market opportunities, which align with its vision and mission. The Company’s strategic objectives include strengthening its leadership position in the retail and SME sectors by developing a leading Shari’ah-compliant financing platform and becoming the partner of choice for its partners by providing flexible and innovative financing solutions.

The Company seeks to add long-term value and make a positive social impact in line with Saudi Vision 2030 by providing integrated solutions to its individual and SME customers as well as creditors, shareholders, investors and other partners through a diverse network of partnerships. MRNA provides financing solutions on competitive terms by reducing the cost of financing, enhancing liquidity, maintaining the quality of its credit portfolio, financing promising and high-growth sectors and enhancing digital distribution channels, and is investing in continuously improving its electronic systems and infrastructure.

Strengths and Competitive Advantages of the Company

The Company has developed competitive advantages and sustainable strengths that allow it to pursue opportunities in the market that are in line with its vision and mission. The following are the eight pillars of the Company’s strengths and competitive advantages:

Proven track record in the field of retail finance and SME finance – The Company has a proven track record in the field of retail finance and SME finance, with a unique and diversified credit portfolio consisting of retail and corporate customers. As of 30 June 2022G, Islamic financing receivables reached a total of SAR 1.04 billion (before calculating the depreciation allowance). Within this, the retail segment stood at SAR 518.6 million or 49.7% of Islamic financing receivables, while the corporate segment, mainly micro, small and medium enterprises, accounted for 50.3% of the Company’s credit portfolio, or SAR 525.8 million.

High quality portfolio with guaranteed SME financing – Islamic financing receivables from the SME sector amounted to SAR 525.8 million as of 30 June 2022G, and consisted of a high quality credit portfolio. It should be noted that 56.8% of SME financing receivables, or SAR 298.6 million, are secured by tangible guarantees including real estate or vehicles. An additional amount of SAR 161.8 million, representing 30.8%, is guaranteed by the debtors, with guarantees of the Kafala programme, which is financed by the Saudi Central Bank at no cost under the lending financing programme. The remaining SME financing includes Islamic financing receivables secured by third-party guarantees amounting to SAR 65.5 million.

A strong capital base and financing capacity that offers more growth – the Company has a large capital base that supports its natural growth. As of 30 June 2022G, shareholders’ equity in the Company amounted to SAR 535.8 million, consisting of capital after the deduction of treasury shares, statutory reserves, retained earnings and non-controlling interest, giving the Company a total financing capacity of SAR 1.6 billion, based on the limit of 3.0 times as stipulated in the executive regulations issued by the Saudi Central Bank. Net Islamic financing receivables amounted to SAR 1.04 billion as of 30 June 2022G, representing a ratio of net Islamic financing receivables to equity of 1.9 times, providing the Company with additional financing capacity of approximately SAR 605.7 million without the need to raise capital.

Diversification and access to sources of financing – The Company has succeeded in achieving natural growth through its financing and liquidity strategy, which provides it with strong access to funding through the optimal combination of bank financing, Sukuk and government finance. The Company relies on equity financing, bank financing and off-balance sheet financing. As of 30 June 2022G, the Company’s total loans amounted to SAR 632.2 million, consisting of banking facilities worth SAR 322.7 million, Sukuk worth SAR 39.2 million and loans from government agencies worth SAR 270.3 million.

Strong network of partnerships – The Company has established strong relationships with banks, financial market institutions and suppliers. Banking relationships include Bank Albilad, Riyad Bank and Al Rajhi Bank. In addition, the Company has a proven track record of success with government entities such as the General Authority for Small and Medium Enterprises (Monsha’at), the Social Development Bank and Saudi Post.

Strong governance with highly experienced and qualified management – As of the date of the Prospectus, the Company had 110 shareholders, of which four shareholders owned more than 5% of the capital. Since its establishment, the Company has a diverse shareholder base and is managed in accordance with the highest standards of corporate governance. Shareholder commitment to the growth of the Company’s business is evidenced by prioritizing the reinvestment of profits and capitalization over cash distributions, and by the shareholders’ capital injections of SAR 80.0 million in the financial year ended 31 December 2016G and SAR 144.6 million in the financial year ended 31 December 2022G. The Company’s shareholder base is supported by its Board of Directors, which has significant experience in banking, systems and finance. The Board of Directors is comprised of a majority of non-executive members, including three independent members with significant skills, qualifications and experience. In addition, the Board of Directors is supported by Board Committees composed of qualified members with specialized expertise in financial services. The Board of Directors supervises a strong Executive Management team with extensive experience and knowledge of the banking sector, as well as an understanding of the business environment and regulatory framework of the Saudi Central Bank. In addition, since 2014G, the Company has attracted senior executives such as the Executive Managing Director, Deputy Chief Financial Officer and Head of Risk Management.

Strong profitability and flexible performance – The Company is one of the fastest growing NBFIs in the Kingdom with annual growth in net Islamic financing receivables reaching 25.1%, increasing from SAR 590.4 million  as of 31 December 2019G to SAR 924.1 million as at 31 December 2021G. Total comprehensive income was SAR 40.6 million for the financial year ended 31 December 2021G, representing a compound annual growth rate of 17.9% from SAR 29.1 million for the financial year ended 31 December 2019G.Net Islamic financing receivables also increased to SAR 1.0 billion as of 30 June 2022G representing an 8.4 per cent. increase compared to 31 December 2021G. Total comprehensive income for the six-month period ended 30 June 2022G amounted to SAR 26.4 million, representing a 36.2 per cent. increase compared to SAR 19.4 million for the six-month period ended 30 June 2021G.

Saudi Central Bank licenses for MRNA to practice financing activities and Loop to provide payment services – The Company is licensed by the Saudi Central Bank to provide leasehold financing services, and to finance small and medium enterprises, individuals and financing production assets under Saudi Central Bank License No. 22/ASH/201410 issued on 19 Thul-Qi’dah 1435H (corresponding to 14 September 2014G). In addition, Loop obtained Saudi Central Bank License No. 41045238 issued on 3 Rajab 1441H (corresponding to 27 February 2020G) to provide payment services. The licenses of MRNA and Loop offer the opportunity to accelerate the digital transformation of the Company and enhance its range of services and solutions through unique and distinctive new products, targeting the individual and SME sectors. This can be achieved through integrated value-added financial solutions including e-wallet and finance solutions, and by providing financing solutions easily, securely and quickly.

Market Dynamics Highlights

The individual and SME finance market in the Kingdom recorded double-digit growth between 2018G and 2020G, with total lending from non-real estate NBFIs increasing at a compound annual growth rate of 9.0% for individual financing and 23.6% for SME financing. Total lending by non-real estate NBFIs amounted to SAR 29.3 billion by the end of 2021G for individual financing and SAR 14.6 billion for SME financing. The growth was mainly attributed to various initiatives under Saudi Vision 2030.

Key factors driving the financing sectors in the Kingdom include economic growth and favourable demographic dynamics, as well as various government initiatives aiming to diversify the Saudi economy and support the SME sector. The International Monetary Fund predicts nominal Saudi GDP to increase at a compound annual growth rate of 6.2% from 2020G to 2026G and expects the Saudi population to reach 39 million by 2026G, up from 35 million in 2020G. Additionally, around 69% of the Kingdom’s population is below 39 years of age, a key demographic driving demand for consumer finance. The sector is also supported by an increase in labour force participation from 40.3% in the first quarter of 2017G to 49.8% as of the third quarter of 2021G, and a drop in unemployment from 12.7% to 11.3% over the same period.

Significant opportunities exist for consolidation, partnerships and digitization. As a leading independent NBFI with a high-quality credit portfolio, a strong track record in SME and individual financing and robust profitability, the Company is well positioned to tap growth opportunities in the future. It is in this context that it acquired 80.0% of Loop.

Offering Details

Albilad Investment Company  has been appointed by the Company as lead manager, sole financial advisor (the “Financial Advisor”), underwriter and bookrunner (the “Bookrunner”).

The Offering, for which the required CMA and Saudi Exchange approvals have been obtained, will consist of the following:

MRNA to issue and offer 21,428,572 Offer Shares, representing 30% of the Company’s issued share capital post capital increase.

The MRNA shares will be listed on the Main Market of the Saudi Exchange following the completion of the offering and listing formalities with both the CMA and the Saudi Exchange.

The Offering will consist of 21,428,572 Offer Shares and will be restricted to the following groups of Subscribers:

Tranche (A): Participating Parties – Comprising the parties entitled to participate in the book-building process as specified under the Instructions for Book-Building Process and Allocation Method in Initial Public Offerings issued by the CMA. Participating entities will provisionally be allocated 21,428,572 Offer Shares, representing 100% of the Offer Shares. The final allocation for the participating entities will be made upon the expiry of individual investors’ subscription period, using the discretionary allocation mechanism. Therefore, no Offer Shares may be allocated for some of the participating entities. If there is sufficient demand by individual investors, the Bookrunner in coordination with the Company shall have the right to reduce the previously allocated Offer Shares to participating entities to 19,285,715 Offer Shares, representing 90% of the total Offer Shares.

Tranche (B): Individual Investors – Comprising Saudi Arabian natural persons, including any Saudi female divorcee or widow with minor children from a marriage to a non-Saudi person who can subscribe for her own benefit or in the names of her minor children, on the condition that she proves that she is a divorcee or widow and the mother of her minor Saudi Arabian children, as well as any non-Saudi natural persons resident in the Kingdom or GCC natural persons, in each case who have a bank account with a receiving agent and the right to open an investment account with a capital market institution. A subscription for Offer Shares made by a person in the name of his divorced wife shall be deemed invalid and the applicant shall be subject to the sanctions prescribed by law. If a duplicate subscription is made, the second subscription will be considered void and only the first subscription will be accepted. A maximum of 2,142,857 Offer Shares, representing 10% of the total Offer Shares shall be allocated to individual investors. If the individual investors do not subscribe in full to the Offer Shares allocated to them, the Bookrunner in coordination with the Company may reduce the number of Offer Shares allocated to individual investors in proportion to the number of Offer Shares subscribed by them.