Document background
The Convertible Debt Agreement is a crucial financing instrument used in Saudi Arabia when companies, particularly growth-stage businesses, seek funding while deferring equity valuation. This document is typically employed when a company needs immediate financing but parties cannot agree on a current valuation, or when they want to postpone the valuation discussion until a future funding round. The agreement must be structured to comply with Saudi Arabian law and Shariah principles, particularly regarding the profit mechanism that replaces conventional interest. It includes detailed provisions for conversion triggers, usually tied to future equity rounds, company sale, or specific milestones. The document addresses key aspects such as conversion price mechanisms, investor protections, and compliance with both the Saudi Companies Law and Capital Market Authority regulations. This type of agreement has become increasingly important in the Saudi startup ecosystem, especially following recent reforms encouraging private sector investment and entrepreneurship.
