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| 09 August, 2018

UAE proposes setting up secondary market for listed companies that report losses of 50% or more- SCA

The Securities and Commodities Authority's draft rules will be targeted at loss-making listed companies

Screens displaying stock information are seen at the Abu Dhabi Securities Exchange, June 17, 2013.

Screens displaying stock information are seen at the Abu Dhabi Securities Exchange, June 17, 2013.

REUTERS/Ben Job

Loss-making companies listed on the Dubai and Abu Dhabi stock exchanges could be moved to a secondary category market if their reported losses are 50 percent or more of their total capital, according to a proposal posted on the official website of the United Arab Emirates’ Securities and Commodities Authority (SCA) on Monday.

“The company which its periodical or annual financial statements show that the accumulated losses have reached a percentage of 50 percent or more from its capital should immediately disclose to the authority and the market,” the SCA statement, posted in Arabic, said.

“The market will commit to transfer the listing of that company to the secondary category,” it added.

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The SCA is the official capital markets regulator of the UAE. The SCA proposal document also stated that companies listed on UAE exchanges that report losses of either below 30 percent, between 30 to 50 percent or 50 percent and above will have “to immediately disclose that to the authority and the market”.

“The announcement from the SCA on the new rules will surely impact a number of companies listed on the local markets, many have already disclosed their results (second quarter earnings results) and others are due to do so in the very short-term,” Marie Salem, director of capital markets at FFA Private Bank in Dubai, told Zawya on Tuesday.

“We believe the coming period will clarify the companies’ financial situations and would hopefully bring in more transparency and clarity to investors,” she added.

Losses of 50 percent or more

In addition, the SCA document said any company impacted by the rules must outline the reasons behind the losses and will be given 45 days to present the SCA with a restructuring plan to turn the business around.

The board of directors of loss-making companies will also be mandated to call a general assembly meeting within 30 days after the financial results are released, in order to decide whether “the company should continue with its activities and execute a capital restructuring plan or dissolve”.

Once the restructuring plan has been agreed, companies must establish a committee of at least three members, including an SCA-certified financial consultant, to follow up on the plan’s progress and updated financial statements must be presented to the SCA every month, the proposal said.

If companies fail to meet any deadlines to submit a restructuring plan they will be subject to penalties by the SCA and “the market - after the authority’s approval - will be allowed to suspend trading on the company’s shares”.

Companies moved to the new secondary category will be allowed to resume trading on the primary market category once losses have been reduced to less than 50 percent of total capital.

The SCA document did not say when the proposed new rules will be finalised or enforced or when the secondary market will be established. The SCA was not immediately available for comment.

To read the full document listed on the SCA website in Arabic, click here
https://www.sca.gov.ae/Arabic/Documents/06Aug2018.pdf

(Reporting by Gerard Aoun; Editing by Yasmine Saleh and Shane McGinley)

(Gerard.aoun@thomsonreuters.com)

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© ZAWYA 2018