Middle East Capital Markets Watch: Equity- Dual Listings of Foreign Companies in the United Arab Emirates – a further driver in the expansion of regional equity markets?

Introduction

The equity capital markets in the United Arab Emirates (“UAE”) are experiencing significant momentum in terms of the volume of listings and investor participation, and have been among the best performing equity markets globally in recent times. Off the back of this, an increasing number of companies listed outside of the UAE (“Foreign Issuers”) are considering taking advantage of such momentum and conducting a secondary listing of their shares on a UAE exchange in order to expand their regional profile, investor base and liquidity in their shares.

As part of our Middle East Capital Markets Watch series, in this article we provide a high-level overview of the main requirements and considerations for a secondary listing of the shares of Foreign Issuers on the Abu Dhabi Securities Exchange (“ADX”) and the Dubai Financial Market (“DFM”, together with ADX, the “Markets”) (“Secondary Listing”). 

Regulatory Framework Overview

Eligibility Conditions and Listing Requirements

Foreign Issuers must satisfy certain eligibility for listing conditions and other requirements before being eligible for a Secondary Listing. The eligibility conditions are set forth in the listing and operational rules of the Markets and SCA regulations, and include requirements around liquidity in the shares of the Foreign Issuer, the size of the relevant Foreign Issuer and its track record and certain other technical requirements. The key eligibility conditions and listing requirements for Secondary Listings include the following:

• the Foreign Issuer must be in compliance with all laws applicable to it in its country of incorporation;
• the Foreign Issuer must be in the legal form of a joint stock company or equivalent in its country of incorporation;
• the Foreign Issuer must have previously offered its shares in a public offering with no less than 25% of its shares offered to the public (or 15% in the event that the market value of its total shares is higher than AED5 billion);
• the Foreign Issuer must be listed on a stock exchange in its home country and such exchange must be subject to the supervision of a regulatory authority which is a regular or associate member of the International Organisation of Securities Commissions;
• the Foreign Issuer must have been incorporated for at least two years during which time the Foreign Issuer issued two balance sheets audited by an accredited auditor;
• the Foreign Issuer must have realised net profits during at least the last two fiscal years;
• the Foreign Issuer's share capital must not be less than AED40 million (or its equivalent);
• the Foreign Issuer must have not less than 100 shareholders holding no less than 100 common shares;
• the Company’s capital is fully paid and the market value of the total shares of the Company shall is not less than AED 50 million (or equivalent);
• there are no restrictions on the transfer of ownership of the Foreign Issuer's shares; and
• the Foreign Issuer has adequate operational capital sufficient for a period of 12 months following the admission date.

Additionally, in respect of a Secondary Listing, a Foreign Issuer is required to appoint a UAE representative, as well as an SCA licensed listing advisor for a period of one year from the admission date.

Process for Secondary Listing

The process for Secondary Listings on ADX and DMF are broadly similar; the main steps that must be followed by a Foreign Issuer in respect of a proposed Secondary Listing include the following:

• appointment of legal and financial advisers;
• the Foreign Issuer must (where relevant convert to a joint stock company or equivalent;
• satisfying to SCA and the relevant Market that the applicable eligibility conditions are complied with and, if not, seeking exemptions/waivers in relation to the same where feasible;
• the Foreign Issuer’s board of directors must approve the Secondary Listing and any corporate steps required to be undertaken;
• a listing advisor and UAE representative must be appointed;
• the relevant listing application documents must be prepared and submitted to SCA and the relevant Market, which include a listing application, listing prospectus (the Listing Prospectus), board of directors’ report (the Board Report) and certain other supporting documents;
• subject to comments of SCA and the chosen Market being reflected in the Listing Prospectus, Board Report and other supporting documents, SCA and the Market must provide sign off and approval in respect of the listing application; and
• the Foreign Issuer must announce certain information (including the Board Report) in Arabic in two daily newspapers in the UAE.

Continuing Obligations

Following the completion of a Secondary Listing, Foreign Issuers become subject to continuing obligations (including disclosure obligations) imposed by both the SCA and the relevant Market.

The SCA continuing obligations are identified in the SCA Decision (No. 3/R) of 2000 and include the following reporting requirements:

• Reporting half-yearly financial reports (external auditor) within 45 days from the end the relevant reporting period; and
• Reporting the annual audited accounts within 90 days from the end of the relevant reporting period.

The relevant events triggering disclosure requirements for a Foreign Issuer upon completion of its Secondary Listing include the following:

• Material board decisions and events impacting the share trading price;
• Details on the acquisition of major assets;
• Changes to the board and executive management; and
• Dates and agenda of shareholder general assembly meetings.

Upon and following a Secondary Listing, a Foreign Issuer is also subject to the market abuse regime applicable on each relevant Market, including as set forth in Federal Law (No. 4) of 2000 concerning the Emirates Securities & Commodities Authority and Market. 

Many of the above will crossover with a Foreign Issuer’s existing continuing obligations under the rules of the listing venue where it has a primary listing, and the investor relations, company secretarial and compliance departments of the Foreign Issuer must become sufficiently well versed in the regulatory framework of SCA and the relevant Market to navigate the interplay and application of these different regimes to the relevant Foreign Issuer post admission.