Initial Public Offering – UAE
An initial public offering is a process that allows companies to offer their shares to the public for the first time. This can be done by publishing a prospectus, offering shares for subscription, submitting relevant documents for approval and so on. Further, Public Joint Stock Companies (PJSC), are the only types of companies that are allowed to offer their shares for subscription in the UAE.
Securities and Commodities Authority (SCA) and the Department of Economic Development (DED) are the two key regulators for the IPO process. Any further approvals that need to be obtained, may be obtained from the Central Bank or the Insurance Authority in the UAE, depending on the nature of business carried out by the company. Once approvals and licenses are obtained, the companies may offer their shares under the DFM or ADX.
- The Companies Law (Federal Law No. 8 of 1984 concerning Commercial Companies) – this governs UAE companies in general, including PJSCs
- The SCA Law (Federal Law No. 4 of 2000)
- The Listing Resolution (Council of Ministers’ Decision No. 12 of 2000 concerning the
- Regulations as to the Listing of Securities and Commodities)
- The Disclosure Resolution (Council of Ministers’ Decision No. 3/R of 2000 concerning the Regulations as to Disclosure and Transparency)
- The ADX Rules (There are no separate listing rules for the DFM: any issuer seeking to list on the DFM need only comply with the listing requirements set out in the Listing Resolution)
- The Central Bank Resolution (the UAE Central Bank Board of Directors’ Resolution No. 164/8/94 regarding the Regulation for Investment Companies and Banking, Financial and Investment Consultation Establishment or Companies).
Eligibility for IPO
There are certain regulatory requirements that need to be fulfilled before a company is permitted to offer their shares to the public. These requirements may be summarised hereunder;
- Article 4 of the Listing Resolution lays down that, only securities that are incorporated in the PJSC whose head office is in the UAE, securities that are foreign but are approved to be listed by the Board of Directors of the SCA, bonds and debt instruments resolved to be listed by the SCA or any other securities approved for listing by the SCA, are eligible to be listed in the market.
- Further, Article 6, divides the securities into two categories based on which securities can be listed. In order to be listed in any of the two categories they are required to satisfy some requirements.
- Contrarily, a discretionary authority to exempt a company from the eligibility requirements lies with the Board of Directors of the Market. The Board also has the authority to reject an application without reason.
- In case of a foreign company eligibility requirements including Council of Ministers’ Decision No. 7/R, 2002, must be adhered to. The requirements are enumerated as follows:
- The issuer must comply with all provisions in the law of the country of its incorporation
- The issuer must be in the form of a public joint stock company or equivalent
- The issuer must be listed in the market of its home country (and the market should be subject to the supervision of a body or authority exercising competencies similar to the competencies of the SCA)
- The issuer must have been incorporated for (and have audited accounts for) a period of not less than two years
- The issued share capital of the issuer must not be less than the equivalent of AED40 million (around US$10.9 million) and must be issued to not less than 100 shareholders
- During the two years preceding the date of submission of the application for listing, the issuer’s net assets must have been in excess of 20 per cent of its paid-up capital, or it had
- realized net profits distributable to the shareholders averaging not less than 5 per cent of the paid-up capital
- The issuer must publish its balance sheets and financial results in two daily Arabic language newspapers before its securities can be admitted to trading on a Market
- The issuer must appoint a representative in the UAE to register the securities, distribute
- profits and receive and issue reports and documents connected with the business of the company
- The issuer must comply with any additional conditions that the Board may from time to time prescribe.
However, regardless of the abovementioned conditions, the SCA’s Board and the Board of Directors of the Market have the discretionary authority to exempt a foreign company from any of the conditions mentioned above or contrarily, decline the application without reason.
Steps involved in the IPO Process
Conversion of the Company into a PJSC
The first step is to convert the company into a PJSC if it isn’t one already. The following steps may be undertaken for the same:
- The nominal value of the issued securities must be fully paid-up
- A period of not less than two financial years must have expired since the incorporation of the Private JSC
- For both of the two years preceding the application for conversion, the company must have achieved net profits for distribution which exceed 10 per cent of the value of the issuer’s capital
- At least three quarters of shareholders must vote in favor of the conversion at an extraordinary general meeting
- the SCA must approve the conversion (its approval will be published in the Official Gazette)
Thereafter the IPO process may be divided into six steps:
- initial approvals
- pre-subscription period
- public subscription/public offering
- incorporation announcement
- registration before the competent authorities and the SCA
- listing of the company on UAE financial markets
- Initial Approvals
A company (the founder’s committee thereof) seeking establishment of PJSC is required to get a special approval from the Board of Directors of SCA for incorporation, if not completed. Upon examination the SCA then, determines whether or not the company possesses such working capital that would be sufficient for the next twelve months and that the offered shares are limited to qualified institutional investors and high-net-worth individuals for amounts that are no less than AED 5 million.
Thereafter, initial approval is obtained from the Department of Economic Development (DED), following which a preliminary approval is to be obtained from the SCA for the establishment go the joint stock company accompanied by all the relevant documents as may be necessary.
Further, the founders committee is given an opportunity to then make any changes as per the requirements of the SCA within 15 days of receiving the notification for such change.
Upon amendment of the application according to the requirements of the SCA, a copy of the finished document is sent to the DED within 10days, following which, according to a joint meeting between the SCA and DED, the DED issues a decision to the license the incorporation of the company.
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