Reforms, new rules to spur rebound in UAE IPO action

Several new initiatives were launched in UAE with aim of bolstering activity in years ahead

An investor walks through the Dubai Financial Market after Joe Biden won the U.S. presidency, in Dubai, United Arab Emirates November 8, 2020. Image used for illustrative purpose

An investor walks through the Dubai Financial Market after Joe Biden won the U.S. presidency, in Dubai, United Arab Emirates November 8, 2020. Image used for illustrative purpose

REUTERS/Christopher Pike

After a fall of 40 per cent in initial public offering (IPO) issuances across the Middle East and North Africa region in 2020, the UAE is expected to witness a rebound in IPO activity in the coming years on the back of sweeping reforms, changes to foreign ownership law and listing requirements in, EY said in a report.

Several new initiatives were also launched in the UAE in 2020 with the aim of bolstering IPO activity in the years ahead.

Among the significant initiatives that were launched in the UAE in 2020 with the aim of boosting IPO activity include the amendments to foreign ownership and listing requirements.

“These changes significantly alter regulations concerning commercial companies, removing the historical requirement to have 51 per cent UAE ownership: onshore companies may now be 100 per cent foreign-owned,” said the EY report.

The changes in regulation also extend to IPO activity and mergers and acquisitions. The founders of private joint-stock companies may now sell up to 70 per cent of their capital by way of a public offering, up from 30 per cent previously. This upper limit, however, may be exceeded with the consent of the UAE’s Securities and Commodities Authority, analysts at EY said.

“The 2020 amendments to the Companies Law bode well for the overall development of capital markets in the UAE. Increased flexibility in foreign ownership, changes to the nationality requirements of board members and the increase in the proportion of share capital that owners may now sell, to name a few, are expected to lead to an increase in the number of IPO candidates in the Emirates,” said Alison Hubbard, Mena law leader at EY Law.

The Mena region saw nine IPOs raise proceeds of $1.86 billion, a fall of 40 per cent in total issuances and 94 per cent in total proceeds when compared with 2019. Out of the nine issuances, six were in the real estate sector, of which two were real estate investment trusts (Reits), with the remaining in the health care, consumer staples and insurance sectors, according to the EY Mena IPO Eye Q4 2020 report.

The fourth quarter of 2020 rebounded with four IPOs in the Mena after a quiet second quarter and one IPO in the third, raising $925 million in total. “Although the number of IPOs decreased by 33 per cent and proceeds were down 97 per cent compared with the same quarter in 2019, Q4 did have the highest proceeds of 2020,” said the report.

Equity markets in the Mena region experienced high volatility and average daily trading values increased significantly across the main exchanges.

The Abu Dhabi Securities Exchange (ADX) ended the year relatively flat, while the Dubai Financial Market (DFM) and Boursa Kuwait indices both fell by 10 per cent and 13 per cent, respectively, during the same period.

In Abu Dhabi, Saweed Holding, Easy Lease, Palm Sports and Zee Stores were listed on the ADX Second Market for Private Joint Stock Companies in the fourth quarter of 2020. ADQ, the full shareholder of the ADX, also launched Q Market Makers during the quarter, which is expected to access the funding allocated to the Abu Dhabi Economic Stimulus Package to enhance market liquidity on the ADX.

During 2020, Al Mal Capital Reit raised $95.3 million and officially listed on the DFM last January 18, the UAE’s first IPO in years. The issuance was the first Reit listing on the exchange and brought the total number of Reit listings in the UAE to three; with Emirates Reit and ENBD Reit being listed on Nasdaq Dubai.

Gregory Hughes, EY Mena IPO and transaction diligence leader, said although Mena IPO activity remained relatively quiet in 2020, several regulators across the region announced positive regulatory changes during the year that bode well for the future and existing public companies.

“As we start 2021, there are reasons for renewed optimism, and we see a strong IPO pipeline in key Mena markets and expect activity to pick up gradually during the new year. We have also seen some interest in mergers with US-listed special purpose acquisition companies in recent months following some limited activity in this area in the last two years from the region.”


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