UAE Companies Law misses opportunity

07 April 2015

New legislation will drive market for initial public offerings, but could have gone further

The UAE’s new Companies Law has missed an opportunity to revolutionise the country’s capital markets and cement its position as the leading force in the region’s financial markets.

The law, which has been years in the making, has several elements designed to boost the UAE’s financial markets and corporate governance.  

The reduction in the required free float on an initial public offering (IPO) to just 30 per cent and the ability to secure market valuation via a book-building process will make listing in the country far more appealing.

But there are many areas the law has failed to tackle.

One disappointment for the market is that the restrictions of foreign ownership in the country have not been reformed. Foreign ownership remains restricted to just 49 per cent in the UAE unless the company is within a freezone.

The new foreign investment law, which is currently being drafted, is now charged with reviewing these restrictions. But many say the conclusion of this law is years away and that the UAE is risking falling behind its Gulf peers.

The new law also fails to reform regulation on the selldown of shares in IPOs. Currently, founding shareholders must hold on to their shares for two years after the IPO is completed before selling down. This puts off private equity firms from using IPOs in the UAE as a way of exiting their investments and encourages them to list on other exchanges with more flexible rules.

There are many other issues the law has ignored, and the fact that the legislation has taken so long to pass in the first place does not fill the business world with confidence that passing future laws will happen any faster.

The law will bolster the UAE’s capital markets, but it missed a chance to truly accelerate the country’s growth.

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