Mandatory listing of shares of Joint Stock Companies on the Securities Exchanges in the Emirate of Dubai
In his capacity as Ruler of Dubai, Vice President and Prime Minister of the UAE His Highness Sheikh Mohammed bin Rashid Al Maktoum issued Decree No. (3) of 2021 (the New Decree) about the listing of joint-stock companies in securities exchanges in Dubai to encourage Dubai businesses to list on Dubai’s securities exchanges to boost its capital markets by enhancing liquidity and investor choice.
According to the Decree, all local public joint-stock companies established in Dubai, including those established in special economic zones or free zones such as the Dubai International Financial Centre (DIFC), should list their stocks on local securities exchanges such as the Dubai Financial Market (DFM) and Nasdaq Dubai, subject to current federal regulations.
After confirming compliance with local listing rules and laws, licensed private joint-stock firms can go public on local stock exchanges. Companies that are listed in local markets might also be listed in other markets as secondary listings.
According to the laws and regulations of the local securities exchange, foreign businesses formed and licensed outside the nation with branches, assets, and operations in Dubai can list their shares in local markets as a main or secondary listing. Non-local firms must list their stocks on local markets if their annual earnings or revenues from operations in Dubai account for 50% or more of their total annual profits or revenues, or if their total assets owned in Dubai account for 50% or more of their total assets, according to the Decree. Within a year after attaining this %, the listing should be finished.
Non-local firms whose income or assets do not meet the necessary proportion can nevertheless list their shares on local exchanges, provided they follow local rules and regulations. Foreign corporations can also offer their stock on local stock exchanges, either as a primary or secondary listing.
The Decree also defines the roles and duties of licensing agencies, such as Dubai Economy, authorities in charge of special economic zones or free zones, such as DIFC, and local securities exchanges, such as DFM and Nasdaq Dubai. Their tasks include monitoring local and non-local firms' compliance with the Decree's regulations, as well as taking action against offenders, which may include the revocation of registration and license until modifications are made to satisfy the Decree's criteria.
Within a year of the Decree's issue, all firms that are subject to it should change their status. The deadline can be extended by the same amount of time as needed by licensing authorities. The Decree goes into force on the day it is published in the Official Gazette.
Who does the New Decree apply to?
The New Decree establishes three distinct kinds of businesses, each with its own set of legislative requirements:
Local Companies ; Public Joint-stock companies incorporated in the Emirate of Dubai and its free zones.
Non-local Companies; Public joint-stock companies incorporated outside of the Emirate of Dubai but within the United Arab Emirates (UAE), with branches, assets, or activities in the Emirate of Dubai.
Foreign Companies; International firms having branches, assets, or activities in the Emirate of Dubai that was formed and licensed outside of the UAE.
What are the new requirements?
Article 2(a) requires all Local Companies to list their shares on the Local Markets if they meet the listing conditions set out in applicable Federal legislation. Existing Local Companies that have not yet been listed on the Local Markets shall do so within one year after the New Decree unless the appropriate Licensing Authority grants an extension under Article 7. Furthermore, before completing their listing on the Local Markets, Local Companies may not list their shares on financial markets outside of the Emirate of Dubai (a dual listing). This means that all current and prospective Local Businesses must be listed on a Local Exchange.
All Non-Local Companies must list their shares on the Local Markets provided if;
50% of their yearly earnings or financial returns are derived from carrying out operations in the Emirate of Dubai; or
50% of their assets are situated in the Emirate of Dubai under Article 3(a).
The required listing must be completed by January 25, 2022, unless the Dubai Economic Department or the relevant free zone regulator of Licensing Authority grant an extension under Article 7. Non-Local Companies who violate either of the aforementioned standards are allowed a one-year grace period to complete their required listing. If the relevant Non-local Company falls below the violating level within the one-year grace period, it will be interesting to see if the required listing procedure is suspended.
It should be emphasized that Article 2(b) of the New Decree guarantees that private joint-stock firms licensed by a Licensing Authority are subject to mandatory listing rules, requiring them to list on the Local Markets if they choose to do so. Private joint-stock businesses would have to choose between listing on the DFM's Second Market or converting to a public joint-stock company and listing on the DFM's main list.
What is the real impact on the companies?
Local Companies - There are unlikely to be any current Dubai-based PJSCs that aren't already listed on the local markets, thus this will have a minimal immediate impact on current Local Companies. Future Local Companies who seek to list must do so on the Local Markets first. The requirements do not apply to Dubai Limited Liability Companies (LLCs), which could still list on other international exchanges, as is frequently the case when a foreign holding company is established as the listing vehicle and owner of the LLC. Foreign Companies are also not required to list on the Local Markets.
Non-local Companies - It will be interesting to see how many Non-local Companies this will affect, given that PJSCs established in Abu Dhabi will most likely be listed on the Abu Dhabi Securities Exchange, and Non-local Companies in other Emirates will either be listed on the DFM or will not trigger either of the percentage tests.
Foreign Companies - They have the option, but not the obligation, to list on the Local Markets, which is important for companies that have done initial public offerings (IPOs) outside the UAE, such as Network International (a UK public limited company listed on the London Stock Exchange) and Yalla Group Limited (a Cayman company listed on the New York Stock Exchange), which are encouraged, but not required, to do so.
The New Decree provides considerable freedom for Dubai firms, and market conditions are likely to be accommodated once the terms of the New Decree are implemented. There are still listing alternatives for Dubai firms that are international corporations, but the New Decree makes it plain that Dubai enterprises who want to list should do so on the local stock markets. This is under the government's long-term strategic goals to build and promote local capital markets.
Are Foreign Companies subject to a mandatory listing requirement?
No, the New Decree expressly states that foreign companies may freely list their shares on local markets as a main or dual listing, subject to the eligibility for listing requirements of the local market. This implies that foreign companies can choose to list on local markets, rather than being forced to do so.