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The kingdom was not directly disrupted by the unrest that blighted the region in 2011 but it intervened in Bahrain, sending troops to avoid any possibility of the protests spreading to its soil. After all, Saudi has issues of it's own, with unemployment, which is said to be as high as 40 % among people ages 15 to 24, a lack of affordable housing and no mortgage law the country's chief concerns....

The kingdom was not directly disrupted by the unrest that blighted the region in 2011 but it intervened in Bahrain, sending troops to avoid any possibility of the protests spreading to its soil. After all, Saudi has issues of it's own, with unemployment, which is said to be as high as 40 % among people ages 15 to 24, a lack of affordable housing and no mortgage law the country's chief concerns.

Pre-emptively, the Royal family pledged oil money to its citizens after the initial trouble erupted. State employees were given 15% pay rises and the king ordered that SR40 billion ($10.7 billion) be pumped into the country's development fund, which provides interest-free loans to Saudis who want to build homes, get married or start small businesses.

With no law governing mortgages, however, the country has a very low level of house ownership. A law has long been rumoured but never made it past the council of ministers. "I've heard various things; from it will get there, to it's still a talking shop. They need to do it but they are really struggling with it conceptually because mortgages are debt, debt equals interest and interest is a bad thing," says one partner. After five years of delays, however, the banks say it could be implemented by 2012, stimulating $32 billion of lending.

Never as over-leveraged as its Gulf neighbours, the country was relatively unaffected by the crisis, but it saw defaults, which stemmed the flow of easy cash for corporates and projects. Lawyers feel they are through the bulk of the restructuring work now and say with banks – which are some of the most liquid in the region – needing to turn profits, the market is becoming active again. "We see much less restructuring and more lending. Late 2009 and early 2010 there was very little lending but 2011 we're really seeing a lot. Banks are under pressure to leverage their assets and make money," says one finance partner. "Banks are going back extending short, medium and long term facilities to corporate borrowers. They are looking at financing real estate projects, they are looking at financing jumbo corporate purposes and they are looking at financing projects on a project finance basis."

The country has witnessed a resurgence of multi-billion projects but only the reliable borrowers are securing finance. "There seems to be a lot of activity, but since credit crunch the banks have taken a harder look at where they are putting their money and only the best ones are coming to market," says one lawyer. Syndicate deals are also becoming the norm: "The re-emergence of the big project and the re-emergence of the co-financings, ie, tapping in to lots of different funding sources is definitely a trend."

The shift towards Islamic finance the country has witnessed in the last few years has become a land-slide, with what was predicted a trend becoming common practice. "There's almost always an Islamic tranche. It's very rare to get a conventional deal on the Saudi market," comments one lawyer. Driven by necessity rather than choice, the propensity towards an Islamic option is instigated by the greater liquidity in local institutions. "It's simple, the Saudi banks have all the money," explains one lawyer. "One of my contacts at the banks rings me up every few years, extremely excited, saying: 'We've got a plain vanilla deal."

There is a genuine push towards privatisation and diversification from oil and gas as the Saudi Royal family plans for the future. The Ma'aden Aluminium plant and rolling Mill project is a prime example: "Ma'aden is a state company which was to a certain extent on the stock exchange so that is part of the government strategy to become less reliant on oil and gas and also introducing the public in on these investments as a passive investor," says one lawyer. Although the country saw the financial close of the $14 billion Jubail Oil Refinery in 2010, the petro chemical side has been quiet. "There's not been that many oil and gas petro-chemical deals in the last year because they haven't awarded any gas allocation letters so what you're seeing is more activity in the secondary downstream sector," says one lawyer. Infrastructure is also high on the agenda with the Medina airport expansion expected to be structured using project finance. The SR30 billion ($8 billion) Knowledge Economic City project, which it is estimated will create more than 20,000 jobs and accommodate over 150,000 people once completed, is also progressing.

A handful or capital increases and private placements aside both the debt and equity capital markets work have been quiet and the protests have by no means increased surety for foreign investors. "It's still in a holding pattern, the Saudi stock exchange is up and down, oil prices are up and down and the Middle Eastern stability is causing a little caution on behalf of investors and not just in Saudi Arabia but the greater area," says one practice head.

The sukuk (Islamic bond) market is slow with corporates turning to financial institutions for the easiest and cheapest way to secure debt rather than enduring the country's laborious listing process. "On the debt capital markets the issuers are recognising that public issuances are expensive and time consuming," explains one lawyer. In a bid to stimulate activity and encourage listings, the CMA is now allowing issuers to place sukuk's privately for the first time. "The process is much easier, simpler and quicker for debt issuers," explains one lawyer.

There is, however, a more noticeable upturn in the equity market: "We are seeing some movement with rights issues and capital increases," observes one lawyer. Another agrees: "We've seen an uptick, we are currently working on four IPOS and a rights offering. My understanding is that the CMA (Capital Markets Association) has a backlog of issues that it has and it wants to get through in it's own time."

To counteract the difficult market and encourage investors, funds are being established in Saudi Arabia. "We're seeing some movement in the market to use contractually based funds. These are structured under the capital markets regime to establish investment funds," explains one lawyer. "We're seeing some appetite from banks in these investment funds, the reason being, flexibility of managing the funds and speed of setting up the funds and relative ease of approaching the CMA or investors."

On the regulatory side, the CMA has issued the consultation new listing rules. "Hopefully it makes the process more transparent and easier for the issuer," explains one lawyer. Dissatisfied with the prospectuses being drafted, the authority is taking a more cautious approach to new issues, which demand a more thorough approach. "The CMA is increasingly trying to influence the quality of due diligence exercises for new capital markets issuances. They told us they will not tolerate the practises of some firms and that may actually mean they influence issuer's choice of firm," says one capital markets practise head. The CMA is also proposing higher capital requirements and stricter corporate governance.

Never Saudi Arabia's most active area, M&A has been quiet. Despite there being plenty of liquidity and readily available acquisition finance, assets values are low. "The prices have dropped from the highs of 2008 and the sellers are still looking for those astronomical numbers they could of achieved three years ago," says one M&A lawyer.

Where lawyers note activity is in joint ventures. "We are seeing a lot of foreign investors coming to the kingdom and setting up with Saudi companies." Given the country's foreign ownership restrictions, this is often the preferred option of outsiders entering the market. The sectors which have seen most interest are healthcare, insurance and manufacturing, all areas where the royal family has pledged to invest.