Qatar: Flexibility in rights issues

Author: | Published: 30 Oct 2015
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Al Tamimi & Company

Address

Al Jazeera Tower, 7th Floor
61 Conference Street, Zone 61
PO Box 23443
West Bay
Doha, Qatar

Telephone

+974 4457 2777

Fax

+974 4436 0921 Visit Website
Sarah_El_Serafy
Sarah El Serafy

As from March 2014, for the first time, the selling and trading of rights issues was explicitly permitted under the rules of the Qatar Financial Markets Authority (QFMA), the body regulating the listing and trading of rights issues of Qatari public joint stock companies on the Qatar Exchange. Under the QFMA regulations, a rights issue is an invitation to existing shareholders to buy new shares in a listed company's capital increase at a discounted price. According to the QFMA, under the selling rights issue rules (SRIR), the invitation to existing shareholders is considered a 'right'. This right may be issued as securities that may be listed and traded on Qatar Exchange until the new shares are purchased. The shareholders may trade the rights on the Qatar Exchange in the same way they would trade ordinary shares.

A rights issue is subject to ownership limits determined in the listed company's articles of association and the Foreign Investment Law (law number 13 of 2000). The existing limit on foreign shareholding in public joint stock companies is 49%. Therefore, rights may not be sold to foreign shareholders who may, by virtue of holding the right, own more than 49% in the capital of a listed company.

According to the QFMA, a company may file an application with the QFMA for the listing of the rights within 10 days from the company's extraordinary general assembly approval on the capital increase. The QFMA will provide its consent on the listing within five days after receiving the listing application of the rights. Two days following the QFMA approval, the rights are listed on the Qatar Exchange in the names of the shareholders to which the rights are allocated. Upon the listing of the rights, they can be traded on the Qatar Exchange for up to 15 days before the subscription date of the capital increase shares. The listed rights are dematerialised and deposited with the Qatar Central Securities Depository following the listing. Setting the price of the rights is determined by the Qatar Exchange and is subject to the QFMA's approval.

The rights are offered for sale for 10 days. The rights cannot be resold within the original sale period of the rights, being 10 days from the offering of the rights for sale. The rights cannot be pledged or attached and cannot be purchased through margin financing. The listing of the right will be cancelled at the end of the original sale period, which is considered the expiry date. After this date the rights lapse and have no value, unless they are used in the subscription of the company's capital increase.

The SRIR aim to compensate the shareholders for the decrease in the value of the shares held by those shareholders.

A shareholder may have the following options to deal with a rights issue:

  • allowing the right to expire without exercising it;
  • subscribing in the shares of the capital increase under the right; or,
  • selling its rights to a third-party investor.

It is important that investors exercise their rights by subscribing in the shares or by selling the rights to a third-party investor before they expire, so as to avoid losing the value of the right.

There are two types of rights issue: renounceable rights and non-renounceable rights. A non-renounceable right is non-transferable. This means that if the shareholders do not exercise the right during the subscription period, they lose their opportunity to purchase the new shares. If a shareholder receives a renounceable right, the shareholder can either choose to buy the additional shares or sell its right on the Qatar Exchange.

Rights are generally a useful financial tool for a company that wishes to raise more funds by issuing additional securities. As well as this, the QFMA regulations bring the added benefit of attracting new investors to a company's capital increase. It is possible for new investors to buy the rights on the market (through a broker licensed with the Qatar Exchange). Rights are a new type of security product available on the Qatari market, thus, numerating the sources of corporate funds.

Sarah El Serafy