UAE sweetens flotation regulations to attract more investment
The new law contains 378 articles intended to promote sustainable economic development and to strengthen competitiveness. (Image: File photo)
The UAE has issued a long-awaited companies law that is expected to transform the business landscape of the national economy by raising the level of competitiveness as well as corporate rules to international standards. The law aims to relax rules covering stock market flotations and seeks to attract more investment by moving corporate regulation closer to international standards.
The law reduces the minimum free float of shares in company flotations on the UAE’s two main stock markets to 30 per cent from 55 per cent in a move aimed at encouraging company owners to go public. At present company owners are not allowed to divest less than 55 per cent stake in their firms in a public offering.
Analysts said as the legislation allows companies to float a minimum of 30 per cent of their equity, an increased number of company owners will be encouraged to go for initial public offering.
Under the new law, for the first time, company owners will be able to carry out floats by selling existing shares, rather than by issuing new equity. And flotation prices will be allowed to be set by book-building, or obtaining indicative bids from fund managers, rather than through a fixed-price evaluation method.
The law, issued by the President, His Highness Shaikh Khalifa bin Zayed Al Nahyan on Wednesday, contains 378 articles.
For the first time, underwriting has been given statutory recognition a move that will enable companies to use a book-building process to price shares. The law introduces the provision of a sole founder under which an individual can now establish a private or limited liability company, a move that will encourage more entrepreneurship. Listed companies are also allowed to convert debt to capital for the first time. Although specific details of the law are still awaited, the long-debated law is not expected to change the existing shareholding pattern of a limited liability company. Under the current law, foreigners generally cannot own more than 49 per cent of any UAE company, unless it is incorporated in a special “free zone”. The new companies law was widely expected to ease that rule.
However, Minister of economy Sultan bin Saeed Al Mansouri said on Monday at the Annual Investment Meet that the UAE was at an advanced stage of drafting a foreign investment law that would allow 100 per cent foreign ownership in certain specific sectors.
The new law also contains dozens of articles seeking to make limited liability and joint stock firms simpler to manage and more attractive to investors, while strengthening corporate governance in areas such as company loans to directors.
Al Mansouri said the new law is a quantum leap for the national economy and will have a significant role in promoting sustainable
economic development in the country and strengthening its competitiveness regionally and globally. It will also support economic diversification and accelerate the steps the country is taking towards a knowledge-based economy based on creativity and innovation, the UAE Vision 2021, and its national agenda.
Al Mansouri said the law was a result of the vision of the wise leadership of the country to raise the level of competitiveness of the national economy, and achieve one of the main objectives of the national agenda of reaching the 10th position on the Global Competitiveness Index.
It will also contribute to strengthening the role of businesses that are critical in the nation’s development strategy and support of the economic diversification policy of the nation, the minister said.
By Isaac John
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