On January 30 2021, it was announced that the Dubai’s ruler Sheikh Mohammed Bin Rashid Al Maktoum issued a decree obliging Dubai-based companies to list their shares on Dubai stock exchanges (i.e. Dubai Financial Market or Nasdaq Dubai) (Dubai Exchanges), before listing on any other stock exchanges.
As a result of numerous announcements in local newspapers and news digital platforms about the decree, there has been a lot of speculation between legal and financial advisors about the ability of UAE-based limited liability companies to pursue an IPO and list on one of the international stock exchanges, similar to what Al Noor Hospital, GMS, Finablr (UAE Exchange) and NMC did by listing their shares on the London Stock Exchange.
These announcements were far from clear and lacked professional analysis, which resulted in raising the concerns of local, regional and international investment banks, as well as UAE potential issuers about the future prospects of Dubai-based companies to pursuing international listings.
On February 4, the decree was published in the UAE Official Gazette to unveil its scope and magnitude, as well as, its effect on Dubai-based companies. This note aims to shed the light on the main aspects of the decree, its scope of application and the expected reactions towards it.
Scope of application
The decree primarily applies to all public joint stock companies that are/will be established in Dubai and Dubai-based private joint stock companies targeting to list on the Second Market. As per the decree, these companies must first list on one of the Dubai Exchanges, but at the same time opens the door for these companies to list on international stock exchanges. Despite the absence of any legislation regulating the dual listing of publicly listed companies on more than one UAE local mainland markets, the decree allows Dubai-based listed companies to dual list on other UAE local mainland markets, i.e. the Abu Dhabi Securities Exchange.
The scope of application of the decree extends to all other UAE-based companies that generate at least 50% of its profits or its financial returns from practicing activities in Dubai. For illustration, if an Abu Dhabi-based/established company has a branch office in Dubai that generates 50% of the profits of such company, this company must list on one of the Dubai Exchanges as a primary market. In this example, if the company in question is already listed on ADX, it will be required to migrate its primary listing to DFM or Nasdaq Dubai no later than one year from the date of publishing the Decree; i.e. February 3 2022.
As per the decree, foreign companies established outside of the UAE are allowed to list on Dubai Exchanges, either as primary or secondary market. This ties in with the very recent amendment of the Issuance Rules No. 11 RM of 2016 allowing free zone and foreign companies to IPO and list their shares on UAE stock markets.
Listing on international stock exchanges
The most pressing question raised by financial advisors and investment bankers is whether limited liability companies incorporated and established in Dubai will be allowed to pursue an IPO on one of the international stock exchanges. The scope of application of the decree does not extend to limited liability companies, and thus pursuing an IPO by limited liability companies on international stock exchanges is still an available option, until now.
Questions remain: will the scope of application of the decree will remain the same? Or it will be extended to limited liability companies? More importantly, how the Dubai Economic Development will interpret the decree and how they will react toward Dubai-based limited liability companies when pursuing an IPO and listing on international stock exchanges.
Finally, it will be fascinating to see how the Emirate of Abu Dhabi will react towards the decree and if a similar decree obliging Abu Dhabi-based companies will be seen, or if companies that generate significant profits in the Emirate of Abu Dhabi can list on ADX as a primary market.
A potential solution to all these ongoing issues is the merger of both markets, DFM and ADX, in one UAE unified market. Until this happens, there will be a wait to see how things will develop.
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