UAE Initial Public Offering (IPO) under the New Companies Law

The Commercial Companies Law No.2 of 2015 was superseded by The UAE Federal Law No. 32 of 2021 in respect of commercial Companies (hereafter called the “New Companies Law”) enforced on 2nd January 2022, by giving a new directive and driving power to the legislation in financial and business sectors in the United Arab Emirates to meet up the world top class standards in legislation for the business community.

 “Objectives “of New Companies Law:-

The New Companies Law brought legislative changes that were desirable for a long time to encourage UAE companies in pursuing Initial Public Offerings (“IPO”), to resolve the issues in global capital markets and react to self-motivated business requirements in the UAE. The New Companies Law brought many changes to the provisions of the 2015 Law relating to limited liability companies and public joint stock companies as well as to some other formations and procedures related to companies’ management. The New Companies Law offered the latest configuration tool as corporate and commercial vehicles may be called special purpose vehicles. This new corporate vehicle allocates the establishment of an SPV with the aim of separating the obligations and assets concerning a specific financing from the obligations and assets of its main entity. It authorizes shifting the risks related to some business procedures through business segregations. 

The article under discussion is throwing light on the main reforms in the New Companies Law  related to IPOs as discussed below. 

 Amendments under New Companies Law regarding IPO:-

• PJSCs authority over IPO:-

The New Companies Law has amended the provisions relating to the publishing of shares in public joint stock companies, enabling PSJCs to have more authority over their IPO process and structure. 

•   Flexibility :-

The New Companies Law has set out the highest and least ranges to which the organizer of a company may publish new shares upon IPO, thus creating greater flexibility in the introducing design. 

•  Change in shares offering Percentage:-

The organizers are no longer required to publish to a minimum of 30% and a maximum of 70% of the new shares on conversion but may now endorse new shares up to the percentage specified in the rule book. 

•  Modification in Article 279 of 2015:-

Article 279 of the 2015 Law is amended and Article 281 of the New Companies Law sets a maximum limit on the percentage of shares that can be offered for sale. The 70% limit on a sale of shares has been removed and now the percentage of sale shares and new shares being offered as part of an IPO under the new companies law. 

• No requirement of statutory time:-

 Under the old law of 2015,the statutory time was 10 days for the public to subscribe for shares in the IPO while the New Companies Law sets no statutory minimum time for the public to subscribe for shares in the IPO. According to Article 124(1) of the new company law  the period specified in the rule book may not go beyond 30 business days.

•  Extension in time may be granted:- 

Article 124(2) deals with the subscription period for the offering which may be extended on an application, not to exceed the long stop date set out in the prospectus. Under 2015 law, there was no such capacity to extend the time; rather it observed the strict position. 

• Issuance of shares at discounted Price;-

Under Article 198 The New Companies Law is observing more flexibility by permitting a company, with the approval of the SCA and pursuant to a special resolution, to issue shares at a discount where the market price of its shares falls below the nominal value . 

• Trading of shares:-

Article 217 of the New Companies Law took away the limitations on the business owner of a PJSC from trading their shares and provided for a statutory lock-in on organizers from trading their shares for two years from the date of listing the Company on the financial market in the State or of the date of registration of the Company in the commercial register maintained by the Competent Authority, in the case of companies exempted from listing.

•  Special purpose acquisition company:-

A special purpose acquisition company has been introduced under The New Companies as a  corporate vehicle. The special purpose acquisition company is defined as “a public joint stock company established for the unique purpose of merging with another  company. This shows the recent popularity of SPACs as a listing and acquisition vehicle which has been a feature of the capital markets landscape, especially in the  United States, for some time. Furthermore, the UAE Securities and Commodities Authority are currently in public consultation on the regulatory framework for the listing of SPACs on the UAE’s  securities markets but, importantly, there is now a legal basis for the corporate vehicle in   order to create a SPAC in the UAE. 

• Division of Assets under New Companies Law;-

Article 294 of the new companies’ law divided the assets by new provisions of business segregation. This Division is the division of responsibilities and the right of a joint stock company into separate companies with separate legal personality has been initiated under New Companies Law.

Such a division may have the following forms;  

(a)  Horizontal division:-in this division, the shares of the new companies are owned by the  same shareholders of the parent company before the divestiture and at the same equity stakes. 

(b) Vertical division:-    in this division the separation of part of the assets or activities into a new subsidiary company that is owned by the parent company.

• Authority of Board of Directors:-

The UAE Ministry of Economy and the board of directors of the company are empowered under their legal authority to work out the division arrangement and administer the implementation progression for compliance. 

Conclusion

The United Arab Emirates’ New Companies Law has resolved many issues in respect of shares, their presentation to market, the division of shares, and many other related issues in respect of financial markets and IPO advisers consistently sought exemptions or waivers.  The IPO progression and dealings are now much clearer and streamlined for potential issuers making a listing on the UAE’s securities markets more attractive and compatible.