The UAE Cabinet's decision to approve a draft law amending the Agency Law to allow and encourage family businesses to go public will bring in more transparency, improve productivity and corporate governance, as well as address the liquidity shortage issue to a great extent in UAE markets, say analysts.
Financial market analysts believe that allowing the family businesses - which are involved in diverse sectors, control wealth worth billions of dollars and employ thousands of people in the UAE and region - will not just give fillip to the local initial public offering market but also give greater depth to local markets and also generate more wealth.
Rajiv Kumar, senior executive officer at PhillipCapital (DIFC) Private, said this is a huge initiative towards nation-building through broader participation and overall economic growth.
"This will give fillip to the IPO market and bring in more transparency and governance in the system, thereby, increasing investor confidence and investment. The IPO process is critical to economy's ability to generate wealth and innovation and brings in retail and institutional investors necessary for the growth of capital market," Kumar said.
Family-run enterprises employ around 70-80 per cent of the private-sector of workforce in the GCC and collectively generate $100 billion, Orient Planet had said in a report. The study had advised that going public is the key solution to ownership succession challenge faced by these groups.
Nimish Makvana, senior partner at Crowe MAK, attributed good GCC economic growth to successful family businesses in the region.
"The UAE is heading towards stronger regulatory framework, keeping in mind long-term growth-oriented and sustainable business opportunity for investors. This will create more transparency and strong confidence in financial system. Investment opportunities will arise in capital market as more and more family businesses will opt for listing," Makvana added.
Vijay Valecha, chief investment officer of Century Financial, said the new rule rightly identifies that family-owned businesses are very crucial to the UAE economy and transforming them is important for improving competitiveness.
"Unlisted companies generally don't face much pressure to improve productivity or boost profit margins due to limited accountability. Most of them might be having the most influential family member as the head of the enterprise who might then have a disproportionate influence and this impacts corporate performance metrics," he said.
"A well-known family enterprise getting listed will attract a lot of new investors to the market, which will in turn increase the depth of the markets. As things stand, lack of liquidity is a major issue in UAE markets and the new law can address this scenario to a great extent. Nevertheless, for that to happen, a majority of the large UAE-based family-owned businesses have to get listed," he added.
Nirav Shah, director at Fame Advisory DMCC, noted that the law is being amended to provide certain flexibility to UAE nationals and is in tune with current market practices.
"It appears that the new law would allow families to access capital markets based on their track record, thus giving them financial support to grow," he said.
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