UAE authorities are looking to reduce the amount of share capital companies need to float upon listing. The Commercial Companies draft law plans to reduce the free float requirement of 55 per cent to 30 per cent, according to three people with knowledge of the matter.

Currently, only family companies are exempted from the 55 per cent rule, as they are already allowed to float a minimum of 30 per cent.

The new minimum will apply to listings on the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX). Nasdaq Dubai is currently the only UAE exchange that sets a lower minimum (25 per cent).

The new law, which the Federal National Council approved in May, will need to be ratified by the Supreme Council, the UAE President and published in the UAE Federal Official Gazette before it comes into force.

UAE stock markets’ high free float requirement is seen as a major hindrance in attracting more local listings. Profitable companies that are not in need of raising extra money are often reluctant to the idea of giving up more control in their companies.

But while the lower free float level removes one barrier, other challenges preventing more companies listing locally remain. The new law does not state whether existing shareholders can sell down their shares during an initial public offering, which currently is not the case.

“Over the past year some companies were ready to list, but decided not to upon learning they are not allowed to sell existing equity. They don’t want to increase their capital and give up more ownership of their company, as that is not always necessary for healthy companies,” says a source.

That has caused an increasing amount of companies to look abroad for listings. The London Stock Exchange is a popular choice, as it also allows companies to tap into a larger pool of liquidity, diversify their shareholder base, and raise their profile globally.

Over the past year, Abu Dhabi’s Al-Noor Hospitals Group and Dubai-based Damac Properties both listed in London, while others such as Stanford Marine Group are understood to be looking at listing abroad as well.

The UAE’s Ministry of Economy could not be reached for comment.