During the ‘era’ of the Federal Law No. (2) of 2015 on Commercial Companies (the Old Companies Law), there have been few initial public offerings in the United Arab Emirates (UAE), two of which were listed on the Abu Dhabi Exchange (ADX) and one on the Dubai Financial Market (DFM).
Generally speaking, the United Arab Emirates has three financial exchange markets, two are onshore – that is, the ADX and the DFM, while the third financial market is NASDAQ Dubai located within the jurisdiction of the Dubai International Financial Centre (DIFC).
The DFM and the ADX are subject to the same federal rules and regulations; therefore, more or less they have the same process, policies and fees.
Having said this, the UAE government have taken recently significant steps to energize business transactions in general and equity capital markets in specific. Some of these changes are the introduction of a new legal framework for doing business in the UAE supported by several regulations to enhance the incentives given to investors and simplify the process further.
A chronological order of some of these new legislations relevant to onshore UAE capital markets are:
the Chairman of UAE Securities and Commodities Authority (SCA) Board Decision No. (03 R.M.) of 2020 concerning adopting the Corporate Governance Guide for Public Joint Stock Companies (New Governance Code)
the Federal Decree-Law No. (32) of 2021 on Commercial Companies (New Companies Law)
the Chairman of UAE Securities and Commodities Authority Board Decision No. (1/TM) of 2022 on the Regulations on Special Purpose Acquisition Companies (SPACs)
Dubai Government has also issued Decree No. (3) of 2021 on the Listing of the Shares of Shareholding Companies in the Exchange Market in the Emirate of Dubai, which came into effect on 4 February 2021 and requires public joint stock companies incorporated in Dubai (including those incorporated in free zones) to list their shares in the securities markets in Dubai, i.e. DFM and NASDAQ Dubai.
A further boost was made by the Dubai government post that decree via the landmark DEWA initial public offering (IPO) raising AED 22.32 billion (USD 6.1 billion) in proceeds and, on listing, DEWA had a market capitalization of AED 124 billion, making it the largest IPO in the UAE, the largest company listed on the Dubai Financial Market, and the second largest public listing in the Middle East and North Africa after Aramco IPO listed on the Saudi exchange market ‘Tadawul’.
The IPO process slightly varies according to:
the business and structure of the company (i.e., whether the company is a newly established public joint stock company or a company undergoing a conversion process to become a public joint stock company);
which emirate the company’s place of business is located; and
which market the company will be listed on.
Usually financial due diligence would cover the financial statements for the previous two years and working capital for the 12 months following the IPO. A legal due diligence should cover the corporate, finance, material agreements, dispute resolution (i.e., litigation, arbitration and administrative proceedings) and any red flag issues that would or may have a material adverse effect on the company applying for an IPO. Commercial due diligence would be also required for the prospectus, early look presentations and the bookbuilding process (if applicable).
A point to note on legal due diligence is that for the purposes of the international offering memorandum or circular (which is not a requirement by the SCA but rather is prepared only if the IPO is being offered and promoted outside the UAE) that a U.S. 10b-5 documentary due diligence is carried out. This is specifically required by the U.S. Securities and Exchange Commission if the IPO is offered and promoted in the U.S. on a Rule 144A offering to ensure that, from a U.S. securities law perspective, the prospectus is accurate and complete and is without any misstatement or omission of a material fact.
On a separate but related note, share pricing and the allocation process in an IPO are governed by the New Companies Law and the relevant SCA’s regulations. There are no longer restrictions on such amount, which can therefore be lower than AED 1 or higher than AED 100.
The New Companies Law have further removed certain restrictions that used to exist under the Old Companies Law and relating to the sale of shares upon conversion of a company, including the maximum percentage of shares which may be sold in a public offering and the restriction on the founders (the shareholders prior to the conversion) on trading their shares once the converted company is listed.
Moreover, the stipulation that a company must have achieved an average of 10% operational profits over the past two financial years, prior to approving its conversion, has been removed by the New Companies Law.
Some of the other changes introduced by the New Companies Law that would be relevant to the IPO process include the following:
the founders must subscribe to the percentage specified in the prospectus but subject to the requirements of the SCA;
no minimum period for the public to subscribe for shares (10 business days under the Old Companies Law), although the maximum period remains 30 business days; and
allow the founders to subscribe for any unsubscribed shares upon the expiry of the subscription period, but subject to the requirements of the SCA.
How can we help?
GLA & CO can assist UAE issuers and their advisers who are considering an IPO or secondary fundraising under the New Companies Law specifically in relation to any of the below:
Eligibility Advice – to assess from a legal perspective the eligibility of the issuer for an onshore IPO
Drafting or reviewing the prospectus according to the UAE laws and regulations
Advising on the UAE aspects of an international offering memorandum or circular
Preparing the Arabic version of the prospectus submitted to the SCA
Advising on the IPO announcements and applications to the SCA and relevant exchange markets
Follow LexTalk World for more news and updates from International Legal Industry.