Dubai urges Dubai businesses to list on Dubai’s securities exchanges

On 26 January 2021, Sheikh Mohammed bin Rashid Al Maktoum, the Ruler of Dubai, issued a royal decree requiring all public joint stock companies established in the UAE which have over half of their assets or profits derived from business activities in Dubai, to be listed on either the Dubai Financial Market (DFM) or Nasdaq Dubai (together, the Local Markets). If they are not already listed on a Local Market, they must do so by January 2022.

Further, all existing public joint stock companies (PJSC) established in Dubai (including the Dubai free zones) must be listed on either of the Local Markets and, if not already listed on a Local Market, they must do so in the same timeframe.

The provisions of Decree No. (3) of 2021 Listing of Joint Stock Companies in the Securities Markets in the Emirate of Dubai (the New Decree) are designed to encourage Dubai businesses to list on Dubai’s securities exchanges in order to boost its capital markets by enhancing liquidity and investor choice.

Who does the New Decree apply to?

The New Decree distinguishes between 3 specific categories of companies and applies different statutory requirements for each category:

• public joint stock companies established in the Emirate of Dubai and its free zones (Local Companies),
• public joint stock companies established outside of the Emirate of Dubai but in the United Arab Emirates (UAE), with branches, assets or activities in the Emirate of Dubai (Non-local Companies); and
• foreign companies established and licensed outside of the UAE with branches, assets or activities in the Emirate of Dubai (Foreign Companies).

What are the new requirements?

1. Local Companies

All Local Companies are required to list their shares on the Local Markets, subject to satisfying the listing requirements under applicable Federal legislation (Article 2(a)). For existing Local Companies that are not already listed on the Local Markets, such listing must take place within one year of the New Decree, subject to any extension from the relevant Licensing Authority (Article 7). In addition, Local Companies may not list their shares on financial markets outside of the Emirate of Dubai (a dual listing) prior to completing their listing on the Local Markets (Article 2(c)). This means that existing and future Local Companies must be listed on a Local Market.

2. Non-local Companies

All Non-Local Companies which have either: (i) 50% of their annual profits or financial returns generated from carrying out activities in the Emirate of Dubai; or (ii) 50% of their assets are located in the Emirate of Dubai, must list their shares on the Local Markets (Article (3(a)). The mandatory listing must be completed by 25 January 2022, subject to any extension from the Dubai Economic Department or the applicable free zone regulator (Licensing Authority) (Article 7). Non-Local Companies that become subject to a mandatory listing by breaching either of the above thresholds are given a grace period of one year to complete the listing after such breach. It will be interesting to see if there will be a stay in the mandatory listing process if the relevant Non-local Company falls below the offending threshold during the one year grace period.

It should be noted that Article 2(b) of the New Decree ensures that private joint stock companies that are licensed by a Licensing Authority are also subject to mandatory listing provisions such that if they are wishing to list they must do so on the Local Markets. Private joint stock companies would have to list on the DFM’s Second Market or, alternatively, convert to a public joint stock company and list on the main list of the DFM.

Are Foreign Companies subject to a mandatory listing requirement?

No. The New Decree explicitly states that Foreign Companies may voluntarily list their shares on the Local Markets as a primary or dual listing, subject to the Local Market’s eligibility for listing requirements. This means that Foreign Companies have the option, and not the obligation, to list on the Local Markets.

Are mandatory listings a good thing?

In practice, not all companies are suitable to be listed and so making a listing mandatory forces some “square pegs into round holes” which is not necessarily a good thing for investors in capital markets. Investors want to see companies come to the public markets that can comply with all of the ongoing obligations of a public company, particularly around market disclosure and corporate governance. In reality, the safeguard is still there in the New Decree such that a company that is mandated to list is still subject to all of the eligibility requirements of the relevant regulator and stock exchange and such regulator and/or stock exchange may reject the application for listing. This would ensure that companies that are inappropriate for listing do not come to market, despite the mandatory requirement to do so.

Further, mandating listing on specific exchanges to the exclusion of others is not necessarily an efficient flow of capital for issuers who may be better suited to listing on other exchanges because of the industry or geographical sector in which it operates. Certain exchanges benefit from having large numbers of active investors focused on a particular industry sector that benefit from benchmarking against peers.

Also, requiring a listing to take place within a certain time limit may not be commercially viable for all companies as the timing of a listing should take into account the state of the market at the time of listing. It may not be commercially advisable to list at the mandated time. In reality, it is assumed that the Licensing Authority will use its discretion and would permit a delay in listing in unforeseen or force majeure circumstances, as expressly provided for in Article 7.

What is the real impact?

Local Companies – it is unlikely that there are any existing Dubai established PJSCs that are not already listed on the Local Markets meaning, in practice, this will have little immediate impact for existing Local Companies. For future Local Companies wishing to list, it is clear that they must first do so on the Local Markets. It should be noted that the requirements do not apply to Dubai Limited Liability Companies (LLC) and so such companies could still list on other international exchanges, which is quite often the case where a foreign holding company is established as the listing vehicle and owner of the LLC (Foreign Companies are also not required to list on the Local Markets – see below).

Non-local Companies – it will be interesting to see just how many Non-local Companies this could actually affect given that Abu Dhabi established PJSCs will most likely be listed on the Abu Dhabi Securities Exchange and Non-local Companies in other Emirates will either already be listed on the DFM or will not trigger either of the percentage tests.

Foreign Companies – they have the option, and not the obligation, to list on the Local Markets which is important for companies that have conducted IPOs outside the UAE such as Network International (a UK public limited company listed on the London Stock Exchange) and Yalla Group Limited (a Cayman company listed on the New York Stock Exchange) who are encouraged, but not forced, to subsequently dual list on the Local Markets.

The New Decree builds in sufficient flexibility for Dubai businesses and there is likely to be accommodation for market circumstances when the provisions of the New Decree are actually enforced. There are still listing options for Dubai businesses that are foreign companies but it is quite clear that the New Decree is setting an expectation that Dubai businesses wishing to list should do so on the local stock exchanges. This is certainly in line with longer term Government strategic plans to develop and encourage the local capital markets.

Further, this is a Dubai Royal Decree that relates to Dubai stock exchanges, subsequently it will be interesting to see if there is any reciprocal development from the Abu Dhabi Government.

When do the New Rules come into force?

The New Decree was published on 26 January 2021 and came into force on that date. Existing Local Companies and Non-local Companies that are subject to a mandatory listing must list by 25 January 2022, subject to any extension from the Licensing Authority and Non-Local Companies that become subject to a mandatory listing are given a grace period of one year to complete the listing.

How can we help?

Our capital markets team is vastly experienced at executing listings and offerings on the Dubai Financial Market and Nasdaq Dubai and other regional and international exchanges. If you think that you may be required to list on the Local Markets pursuant to the New Decree then we can make an initial assessment for you and then advise you accordingly if action is required. If you wish to pursue a listing or offering on either of the Local Markets in the future, whether to comply with the New Decree or voluntarily, our team is ready to assist.