The United Arab Emirates (UAE) has become the place to be for a number of industries including construction, banking and finance. Dubai in particular has been attracting more and more foreign investment and has, in turn, been prospering exceptionally well. Together with the economic growth in the UAE and the ever-increasing interest in capital markets, there has been a significant increase in investment from companies incorporated and operating outside the UAE in listing their securities on an exchange in the UAE. The UAE offers three markets for a foreign issuer to consider: the Dubai International Financial Exchange (DIFX), the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADSE).

The DIFX and the DFM have a lot to offer to both a UAE applicant and a foreign applicant. However, there are significant differences between them in terms of the exchanges. These factors, among others, should be carefully analysed and considered by a potential issuer and its advisers so that the chosen market is suitable.

The DIFX

To begin with, the DIFX is a stock exchange operating in the Dubai International Financial Centre (DIFC), which commenced operations in September 2005. The DIFX has very flexible criteria in terms of the place of incorporation and former listings of the applicant wishing to list securities on the exchange. It allows companies registered and operating in any jurisdiction to apply for the listing of securities on the exchange, as long as the applicant is permitted to do so under the laws, rules and/or regulations of its home jurisdiction.

Although the DIFX has, since its inception, accepted applicants from all jurisdictions, until recently companies operating under the laws of the UAE were not able to enter the DIFX. Under Cabinet Resolution 28 of 2007 Regarding the Implementing Regulation of Federal Law 8 of 2004 in relation to Financial Free Zones, companies registered and operating in the DIFC are allowed to establish companies and branches in the UAE. In accordance with the Cabinet Resolution, a DIFC holding entity (the shareholding structure of which must comply with UAE laws and regulations) is established and becomes the owner of an underlying UAE Company. As a result of the above, although securities of a DIFC holding are listed, the underlying UAE company indirectly benefits from the listing.

Products

The DIFX offers a very wide range of products, such as: (i) equity products shares, depository receipts, subscription warrants over shares; (ii) fixed income products – sovereign/government bonds, supranational bonds, corporate bonds, convertible notes, convertible preference shares, asset backed securities, floating rate notes, Eurobonds, MTN programmes, collateralised debt obligations and subscription warrants over debt; (iii) funds – investment funds, investment companies, unit trusts, limited partnerships, umbrella funds, hedge funds, real estate investments trusts and exchange traded funds; (iv) index certificates – designated investments, subscription warrants over equity and debt; (v) structured products (securities across a variety of asset classes); and (vi) Islamic products – sukuk (Islamic bonds), Islamic funds, sharia-compliant certificates and index products.

Dubai Financial Market

The DFM has a lot to offer to the issuer wishing to list securities on the UAE market. It is an exchange that welcomes both UAE and foreign entities, provided that the latter already have their securities listed on an exchange in their home jurisdiction and meet the listing requirements set by the SCA and the DFM.

Products

The DFM offers to non-UAE issuers shares, bonds, Islamic sukuk, mutual funds and notes issued by public joint stock companies and any other financial instruments accepted by the SCA.

The eligibility criteria and other listing requirements referred to below do not apply to UAE applicants.

A foreign issuer applying for listing on the DFM is required to be a public company with securities already listed in its home jurisdiction. One may wonder why the applicant would even consider listing securities on more than one exchange. The answer to that question may well depend on the issuer concerned. However, in most cases the reason companies apply for the listing of securities on more than one stock exchange (and/or in more than one jurisdiction) is to have access to more capital, diversify the investor base and in turn mitigate volatility in the securities and/or reduce the costs of capital. Taking these reasons into account, the listing of securities on the DFM may be worth consideration.

The listing requirements for the DFM are set out by the laws, rules and regulations of the SCA and the DFM: in particular, Board of Directors' Regulation 7 of 2002 Concerning The Listing of Foreign Companies.

In order to have securities listed and admitted to trading on the DFM, the issuer is required to apply to the SCA for approval.

SCA approval

Eligibility criteria

Before the issuer applies to the SCA for the approval, it should ensure it meets the following eligibility criteria:

• it is compliant with the laws of its home jurisdiction;
• it is a public joint stock company or any such legal entity that is eligible for listing in its home jurisdiction;
• it has its securities listed on an exchange in the home jurisdiction and is operating under the umbrella of an authority that has similar responsibilities to those of the SCA;
• it has been incorporated for not less than two years as an entity eligible for listing in its home country, with financial statements issued for each year and audited by an approved auditor;
• it has minimum paid-up capital of Dh40 million ($11 million) and the number of its shareholders is not less than 100;
• its net assets are more than 120% of its paid-up capital or it has realised net profits which can be distributed to its shareholders at a minimum average of 5% of the paid-up capital, during the two years before the submission of the listing application;
• it must be able to prove that it has held an ordinary general meeting at least once a year in the course of its operations;
• it should have no full restrictions on the transfer of securities between investors other than to nationals of its home jurisdiction (the limited restrictions will be subject to the SCA's consideration);
• it must undertake to publish its balance sheet and financial results in the daily UAE media before the securities can be traded on the DFM; and
• it must appoint a representative in the UAE to handle all matters related to the registration of the securities, the distribution of dividends, the submission of required reports to the regulatory authorities and any other relevant matters.

Documents required

In the process of application for approval, the applicant will be required to file a number of documents with the SCA (application form, report from the issuer's board of directors, financials, constitutional documents of the issuer, for instance).

The SCA requires that all the documents are in Arabic, or in any other language accompanied by a sworn translation into Arabic.

Secondary listing with the DFM

Eligibility criteria

Once the issuer's application is approved by the SCA, it needs to apply to the DFM to have securities listed and admitted to trading. The DFM will find the applicant eligible for listing provided that:

• it has a sound financial position;
• it complies with the International Accounting Standards (IAS) or US GAAP and presents its financial statements in USD in addition to its local currency;
• it issues and offers to interested investors in the UAE, free of charge and before listing, an information memorandum; and
• the directors of the issuer will individually and collectively accept full responsibility for the completeness and accuracy of all information submitted to the DFM.

Documents

The DFM requires that a number of documents are filed with them (listing application form, names of the people who are in charge of coordinating the listing process for the issuer, incorporation documents of the issuer, the investor number (IN) at the DFM for the board of directors and executive managers, information memorandum and the issuer's profile, for instance) or an unavailability letter if any of the documents are unavailable.

The DFM allows that the application documents are provided in English.

It is noteworthy to mention that even if all the requirements referred to above as prescribed under the SCA and/or the DFM rules and regulations are met and all the documents required are submitted, both the SCA and the DFM reserve the right to request additional information or documents from the applicant.

Primary DIFX listings

The listing requirements for the DIFX are mainly set out by the listing rules of the DIFX, Dubai Financial Services Authority (DFSA), the Offered Securities Rules Module (OSR) and Markets Law DIFC Law No 12 of 2004.

DFSA

When applying for listing with the DIFX, the applicant is required to file an offering circular with the DFSA for review and approval.

DIFX

In addition to the DFSA application referred to above, the applicant will simultaneously apply to the DIFX for the listing of securities. The main eligibility criterion that the applicant is required to meet is the lack of any legal and/or regulatory restrictions on the applicant that would prevent listing. The aforementioned is a very broad category that includes, in particular, any restrictions under the laws, rules and/or regulations of the applicants' home jurisdiction to that effect.

Eligibility criteria

The applicant must meet the following requirements to list securities on the DIFX.

Relating to the applicant:

• the DIFX is of the view that both the issuer and the business are suitable for listing;
• the issuer must enter into such undertakings as may be required by the DIFX;
• the directors of the issuer must have appropriate experience and expertise in the business of the applicant and exhibit high standards of integrity;
• the issuer must ensure that the arrangements for clearing and settling any trades in securities are acceptable to the DIFX;
• the issuer must appoint a listing sponsor;
• the DIFX must be of the view that there is (or is to be) an adequate and open market in securities for which listing is sought. For the DIFX to be satisfied that this requirement is complied with, it generally requires that there is or will be a minimum free float of 25% of the securities to be listed;
• the applicant must have published audited accounts which cover at least three years, the period to which the accounts relate must not end more than six months before the date of the listing application and such accounts must have been produced in accordance with the International Financial Reporting Standards (IFRS) or other standards acceptable to the DIFX – accounts must have been reported on by the auditors without material qualification;
• if there is a majority or controlling shareholder, the DIFX must be satisfied that the issuer will be able to operate its business independently of that shareholder;
• the issuer may not have in issue warrants where the holders of the warrants, together with the holders of other warrants issued by the company, would together have the right to subscribe for more than 20% of the outstanding share capital of the issuer;
• the issuer must have expected market capitalisation of at least $50 million;
• the issuer's constitution must contain the following mandatory provisions (in respect of the capital structure of the issuer, voting rights, non-voting rights, restricted voting shares, preferences shares, transfer and registration of shares, registration on transfer, shareholders register, definitive certificates, proxy forms, untraceable members, dividends, forfeiture, directors and casual vacancy); and
• in the case of warrants, unless the securities are to be listed as restricted securities, the issuer of the warrants must normally have securities listed on the DIFX or another stock exchange recognised for this purpose by the DIFX (an exchange that is a member of the World Federation of Exchanges).

Relating to securities:

• any restrictions on transferability that apply to securities must be acceptable to the DIFX;
• the whole class of securities to which securities belong must be listed;
• all securities within a class of securities must carry the same rights, including voting rights in relation to their class;
• holders of securities must have the right to secure methods of recording ownership and registering changes in ownership;
• holders of securities must have specified rights to share in the profits of the issuer; and
• holders of securities with voting rights must be able to vote in person or by proxy at meetings of securities holders and equal effect must be given to votes whether cast in person or by proxy.

Documents

The DIFX requires that a number of documents are submitted in the course of the listing application process, such as the application form, the offering circular, incorporation and constitutional documents of the issuer and audited annual accounts for three financial years, among other things.

Comparison

Although the two exchanges welcome non-UAE companies to list securities, there are a number of differences between the eligibility criteria and other listing requirements of the DIFX and the DFM.

First, the DIFX welcomes applicants listed on other exchanges as well as private companies willing to go public, whereas the DFM allows for listings of non-UAE companies already listed in their home jurisdiction.

Second, the DIFX offers a much wider range of products than the DFM. The DIFX requires a minimum free float of 25%, whereas the DFM leaves it up to the issuer to decide, and the capitalisation requirements of the DIFX of $50 million are more stringent than those of the DFM (Dh40 million).

Furthermore, the DIFX requires three years' financial records, whereas the DFM requires two years' financial records of the issuer before listing. Also, the DIFX is comfortable with the IFRS, whereas the DFM accepts the IAS or US GAAP.

Another significant difference is evident in that the DFSA and the DIFX require all the documents to be filed in English. In contrast to this, the SCA requires Arabic documents or documents accompanied by a sworn translation into Arabic.

Moreover, the DIFX and the DFSA have more stringent corporate governance requirements than the DFM.

The DFM does not allow securities to be issued at a discount, whereas the DIFX allows for this.

Finally, the DFM does not require that the constitution of the issuer includes certain provisions, whereas the DIFX regulates the content of the constitution of the issuer.

The future

The UAE is certainly one of the most dynamic places in the modern world for those interested in investing in securities. With its three stock exchanges (the DIFX, the DFM and the ADSE), it has the potential to become a central financial hub in the Middle East and North Africa region and certainly the most influential GCC state. Watching the extraordinary dynamics of the UAE capital markets leaves no doubt that both the DIFX and the DFM are worth serious consideration by non-UAE companies seeking access to more capital, a diverse investor base, a reduction in the cost of capital and the mitigation of volatility in their securities.

The eligibility criteria that the issuer is required to meet before securities are listed on the DFM and the information and documents that the DFSA, the DIFX, the SCA and the DFM request are standard. The DIFX and the DFM have already attracted several issuers that have successfully listed their shares. With such impressive economic growth and significant foreign investment in the UAE at present, it is highly likely that we will see many more listings.

Author biographies

Husam Hourani Al Tamimi Husam Hourani is a partner and heads the banking and finance department of Al Tamimi. He graduated from Kent University, England with honours in law in 1992 and was subsequently awarded his masters in 1993 from IISL in Spain. Husam advises clients on banking and finance related matters in the United Arab Emirates. He also advises clients on large capital markets transactions in the United Arab Emirates, including in particular listings and/or offerings of different financial products on the DFM, DIFX and the ADSE, as well as continuing/reporting obligations and other related regulatory matters. Husam's relevant experiences include advising on listings of the following companies: Air Arabia PJSC, Deyaar Developments PJSC, Bank of Ajman PJSC, Tamweel PJSC, Drake & Scull PJSC, DFM, Kingdom Hotel Investments Limited, Citigold Corporation Limited, Fortune Management Inc, DP World Limited, Depa Limited and Damas International Limited. Along with being presented Best Lawyer award from Tamweel in 2005, he is also on the DIFX Listing Committee. Legal 500 states that Husam has been described by clients as "the most knowledgeable banking lawyer in Dubai, insofar as the local market is concerned". He is noted for his expertise in relation to the newly established DIFC. Furthermore, Chambers Global affirms that Husam delivers superb commercial advice to his diverse client base. A "first name for finance", he is plugged into the key institutions, especially in Dubai. Izabella Szadkowska Al Tamimi Izabella Szadkowska is a legal consultant in the banking and finance department of Al Tamimi, having specialised in those areas for four years. She graduated from the University of Cambridge with a degree in English and EU law and from the Warsaw University Faculty of Law (LLM, Hons). Before joining the firm, Izabella was a trainee at Linklaters LLP (Warsaw office), practised at Clifford Chance LLP (Warsaw office), White & Case LLP (Warsaw office) and Galadari & Associates Advocates and Legal Consultants, United Arab Emirates. Izabella's practice includes capital markets (mainly securities), investment banking and, in particular, security listings on the DIFX and the DFM, incorporation/transfer of incorporation of non-regulated entities in/to DIFC, restructuring of companies before public offerings and providing day-to-day legal advice to corporate clients operating in the DIFC. Some of Izabella's relevant experience includes advising Citigold Corporation Limited, Kingdom Hotel Investments, Stanton Technologies Limited, DP World Limited, Depa Limited, Damas International Limited on the listing of equity on the DIFX, as well as numerous private placements in and/or from the DIFC (United Arab Shipping Company, for instance), preparation of legal structures of DIFC and other entities to go public on the DIFX or on the DFM and general advice and assistance throughout the IPO and/or secondary listing process.