How would you describe the general state of equity capital markets in your jurisdiction, including notable recent activity and deals?
NASDAQ Dubai has recently been more active in derivatives, debt-to-equity and debt capital market transactions. Even though there have been few equity capital market transactions on NASDAQ Dubai in recent years, some companies are now considering listing there.
What recognised exchanges operate in your jurisdiction, and what are the pros and cons of listing in each?
There are three financial exchange markets in the United Arab Emirates – the Abu Dhabi Exchange and the Dubai Financial Market (which are both onshore), and the NASDAQ Dubai (which is located within the jurisdiction of the Dubai International Financial Centre (DIFC)).
NASDAQ Dubai is a member of the NASDAQ exchange market in the United States, which is the second largest exchange in the world for market capitalisation. NASDAQ Dubai is considered to have lower listing fees and lower minimum listing requirements in comparison with other large global exchanges. An additional advantage is that it features all-electronic trading.
NASDAQ Dubai facilitates diversified trading and investments to a large number of investors by setting listing requirements using disclosure, transparency, trading, settlement and governance systems. Most investors trade on both the NASDAQ and Dubai Financial Market seamlessly, using the same investor number on the same trading platform.
Reforms and case law
Are any regulatory reforms envisaged or underway with regard to equity capital markets? Has there been any recent case law affecting the markets?
The latest regulatory reform was issued on 12 April 2018 in the Dubai Financial Services Authority Rulebook 3 for Admission and Disclosure Standards of Issuers. There is no case law relating to DIFC equity capital markets.
Have there been any notable recent developments in financial technology (fintech) which affect equity capital markets in your jurisdiction?
No; however, NASDAQ Dubai currently has all-electronic trading systems. NASDAQ Dubai also recognises the need for investor-friendly trading platforms and thus continuously undergoes development working towards this initiative.
What primary and secondary legislation governs the issue and trade of equity securities in your jurisdiction?
NASDAQ Dubai is subject to the Dubai Financial Services Authority (DFSA) and is governed by its rules and regulations. The primary legislation governing NASDAQ Dubai is the Dubai International Financial Centre (DIFC) Companies Law, the DIFC Markets Law and the DIFC Regulatory Law. Secondary regulations include:
- the DIFC Companies Regulations;
- the DFSA Rulebook for Admission and Disclosure Standards of Issuers;
- the DFSA Rulebook Glossary Module;
- the DFSA Rulebook General Module;
- the DFSA Markets Rules Module; and
- the DFSA Rulebook Conduct of Business Module.
NASDAQ Dubai has its own separate rules that must be derived from and comply with DIFC laws and DFSA regulations.
Which authorities regulate equity capital markets in your jurisdiction and what is the extent of their powers?
The DFSA has absolute power over NASDAQ Dubai and absolute discretion, in accordance with the applicable laws and regulations, to accept or reject applications for:
- initial and secondary offerings;
- promotions and marketing of securities;
- listing and de-listing; and
- capital restructuring, whether by way of capital increase or reduction.
Further, the DFSA is entitled to regulate and monitor the markets and intervene in case of manipulation or volatility of the markets by way of suspending trading, imposing fines or cancelling licences, consents or approvals for markets, brokers, market makers, issuers or investors. The DFSA also regulates the requirements for trading, settlement, disclosure, listing and corporate governance in accordance with applicable laws and regulations. They both have absolute and general powers and authority to develop the DIFC equity capital markets according to their jurisdiction.
What eligibility and disclosure requirements apply for primary listing of equity securities on recognised exchanges in your jurisdiction (eg, aggregate share value, free float requirements, trading record, working capital)?
For Dubai International Financial Centre (DIFC) companies wishing to list primarily on NASDAQ Dubai, prior to listing the company must:
- be duly incorporated with a minimum capital requirement of $10 million;
- have published or filed standard consolidated audited accounts prepared in accordance with International Financial Reporting Standards or other acceptable standards and audited by a Dubai Financial Services Authority (DFSA) registered auditor for a three-year period before the listing;
- have sufficient working capital available for its present requirements or, if not, confirm how it proposes to provide the additional working capital needed;
- demonstrate that the directors have appropriate experience and expertise in the business operations of the company; and
- demonstrate that the company can operate its business separately from any controlling shareholder and has adequate systems and controls to eliminate or manage material conflicts of interest in its business.
Companies listed on NASDAQ Dubai must follow its disclosure regulations, as well as those issued by the DFSA. Examples include:
- disclosure of resolutions taken during board and general meetings;
- financial statements on a quarterly basis; and
- any other material information that affects the operation of the business or the listed shares’ market price.
NASDAQ Dubai has a minimum free float requirement of 25% of the issued share capital.
Are there any exemptions from the listing requirements?
Exemptions can be granted in exceptional circumstances and on a case-by-case basis.
Procedure and timeframe
What is the procedure and typical timeframe for listing?
A company usually submits a listing request accompanied by supporting documents to NASDAQ Dubai, in accordance with the listing rules set by the DFSA. The procedure and timeframe for listing varies according to the accuracy and completeness of the supporting documents and fulfilment of all other requirements. There is no specific timeframe for DIFC companies applying to list their shares on NASDAQ Dubai.
What fees apply for an application to list equity securities?
NASDAQ Dubai imposes the following fees:
- primary listing/initial public offering – $5,000;
- secondary listing/capital raising – $5,000; and
- secondary listing/non-capital raising – $2,500.
Listing versus admission to trading
Is there a distinction between listing and admission to trading in your jurisdiction?
The application made to NASDAQ is for admission to the trading exchange.
The application made to the DFSA is for admission to the Official List of Securities.
Are there any differences in the rules, restrictions and procedures for secondary listings of equity securities?
Secondary listings are generally considered to require less paperwork. However, certain fundamental documents, such as the prospectus, are required in every listing irrespective of the number of listings a company may undergo. Nevertheless, the content requirements of a prospectus differ depending on whether it is in relation to a primary or secondary listing.
Are there any differences in the listing rules and procedures for foreign issuers?
The requirements applicable to DIFC companies are the same as those applicable to foreign issuers, with some requirements that could be exempt if not applicable or on the DFSA’s approval, which has the discretion to grant or reject the application.
Under what circumstances can a company be delisted? What rules and procedures apply?
A company may de-list its shares for any reason it deems fit. The company should obtain approval from its board of directors and shareholders, as well as the DFSA.
A company’s shares may be involuntarily de-listed by the DFSA if:
- the securities are no longer admitted to trading as required by the DFSA;
- the company no longer satisfies one or more of its continuing obligations for listing;
- the securities are suspended for more than a six-month period;
- the securities have been subject to a merger, takeover or reverse takeover;
- the listing is a secondary listing and the securities have been cancelled on their primary listing or are no longer admitted for trading for such primary listing; or
- it is in the interest of the DIFC, investors, potential investors or the DIFC capital markets to de-list such securities.
In all cases, the laws and rules of the DFSA apply in respect of a de-listing.
Initial public offerings
What are the most common structures used for IPOs in your jurisdiction, and what are the advantages and disadvantages of each?
Only companies that are limited by shares can undergo an IPO.
Procedure and timeframe
What is the procedure and typical timeframe for launching an IPO?
For Dubai International Financial Centre (DIFC) companies undergoing an IPO, the applicant must apply to the Dubai Financial Services Authority (DFSA) by:
- submitting the relevant documents in their final form;
- paying the relevant fees at the time of submitting the completed application form;
- submitting all additional documents, explanations and information that may be required by the DFSA; and
- submitting verification of any information in such a manner as the DFSA may specify.
When considering an application for admission of securities, the DFSA may:
- conduct any enquiries and request any further information that it considers appropriate, including consulting with other regulators or exchanges;
- request that an applicant answer questions and explain any matter that the DFSA considers relevant to the application for listing;
- consider any information that it believes appropriate in relation to the application for listing;
- request that any further information provided by the applicant be verified in such manner as the DFSA may specify; and
- impose any additional conditions on the applicant as the DFSA considers appropriate.
The following documents must be submitted by the applicant in their final form to the DFSA two business days before the DFSA considers the application:
- a completed application form;
- the approved prospectus and, if applicable, any approved supplementary prospectus in respect of the secondary offering;
- written confirmation of the number of shares to be allotted in the offer; and
- a copy of the announcement detailing the number and type of securities that are subject to the application and the circumstances of their issue.
The following documents must be submitted in their final form to the DFSA by the applicant on the day that the DFSA considers the application:
- a completed shareholder statement; and
- a completed pricing statement, in the case of a placing, open offer or offer for subscription.
What due diligence is required and advised in the IPO process?
Notwithstanding any risks, liabilities and pitfalls related to the business of the company or any market risks occurring during the IPO process, the IPO is a multi-pillar process and therefore there should be no potential legal risks, liabilities or pitfalls with regard to undertaking the IPO process. Any negligence on the part of the company or its advisers may expose the company and its founders to risk.
Usually the financial due diligence would cover the financial statements for the previous two years and working capital for the 12 months after the IPO. For the legal due diligence, it should cover the corporate, finance, material agreements, dispute resolution (ie, litigation, arbitration and administrative proceedings) and any red flag issues that would or may have a material adverse effect on the company applying for an IPO. Commercial due diligence would be also required for the prospectus, early-look presentations and book-building process (if applicable).
Pricing and allocation
What rules and standards govern share pricing and allocation in the context of an IPO?
Share pricing and the allocation process in an IPO are governed by the DIFC Markets Law and DFSA regulations. However, the share nominal price can be no less than $1. In order to have a nominal share price of less than $1, approval should be obtained to justify the reasons.
Types/pros and cons
What types of follow-on offering are commonly used in your jurisdiction, and what are the advantages and disadvantages of each?
The concept of a follow-on offering in the Dubai International Financial Centre is recognised as a secondary offering.
Applicability and exemptions
When must a prospectus be filed? Are there any notable exemptions?
A prospectus is filed simultaneously with the phase of obtaining approvals from the Dubai Financial Services Authority (DFSA). As a way to ensure transparency in the market, all companies are subject to the same rules and procedures, with no exemptions. The final draft of the prospectus must be approved prior to the offering.
What must the prospectus contain?
Among the many items that a prospectus must contain according to the relevant Dubai International Financial Centre regulations, typically any prospectus should include:
- a brief on the company’s historical financial statements;
- working capital and future forecasts;
- business description;
- risk factors;
- material agreements and litigation; and
- corporate governance structures.
Filing and approval procedure
What is the procedure for filing for and obtaining prospectus approval from the regulator? Can draft prospectuses be submitted to the regulator for preliminary comment?
A prospectus is usually filed simultaneously with the phase of obtaining approvals from the DFSA. A draft prospectus is usually submitted to the DFSA for comments and approval prior to commencing the offering.
What types of prospectus liability can arise (eg, statutory, contractual, tort)? Which parties may be held liable?
Typically, statutory liabilities may arise out of the prospectus. The parties that may be held liable in this regard are usually the management and IPO advisers of the company (limited to the type of service provided).
What defences are available for liable parties?
To be unaware of any inaccuracy or incompleteness of any information contained in the prospectus, or that such information was indeed correct at the time that it was included in the prospectus and that it has changed due to circumstances beyond the parties’ control and was unknown to them, and that such parties have exercised due care during the time that they announced such information and included it in the prospectus. However, there is no guarantee that the DFSA or competent court will accept such a defence.
What methods are commonly used to market equity security offerings in your jurisdiction?
Typical marketing methods include announcements, the prospectus and early-look presentations. These are announced in public newspapers, the media websites of exchange markets, as well as through roadshows. A PR agency is usually engaged for marketing securities, especially IPOs.
Rules and restrictions
What rules and restrictions (if any) apply to the marketing of equity securities?
Any entity marketing equity securities must be licensed to undertake to do so, except marketing directed at qualified investors (excluding high net-worth individuals). Additionally, such equity securities must not be subject to any confidentiality restrictions, but must be approved by the relevant regulator, except if they are marketed to qualified investors (excluding high-net-worth individuals).
To what extent is bookbuilding used in your jurisdiction, and how does the process customarily play out? What are the advantages and disadvantages of using this process?
Book-building is a well-known concept in the Dubai International Financial Centre and is regulated by the Companies Law and the Dubai Financial Services Authority.
Role of advisers
Adviser roles and responsibilities
Describe the role and responsibilities of the following advisers in the context of equity securities offerings, including how their relationship with the issuer is formalised (eg, through terms of agreements):
Banks and underwriters usually lead and arrange the entire offering process. They also raise investment capital from investors on behalf of companies issuing equity securities and may undertake to underwrite the unsubscribed securities.
Auditors usually audit financial statements of issuing companies, financial projects and forecasts, determine pricing methods, calculate pricing during the course of the offering process and prepare the working capital report.
Lawyers are usually responsible for overseeing the entire offering process from a legal perspective and ensuring that it is compliant with the applicable laws and regulations. In particular, lawyers are responsible for, to the best of their knowledge, accuracy of the information contained in the prospectus, as well as ensuring that the company follows the steps required by the relevant authorities in respect of the offering process, for which lawyers will prepare the necessary drafts and documents.
(d) Any other relevant advisers?
Appraisers evaluate the in-kind contribution.
What continuing obligations apply to issuers of equity securities? What are the penalties for non-compliance?
At all times, issuers of equity securities should ensure the accuracy of information provided and announced in the prospectus and comply with the applicable laws and regulations of the exchange market rules. Penalties for non-compliance vary depending on the type of breach. A penalty that can be applied is the de-listing of the company’s securities from NASDAQ Dubai; however, this has never happened before.
Market abuse provisions
Rules and restrictions
What rules and restrictions are in place to combat market abuse and insider trading? What are the penalties for breach of these rules?
The Dubai Financial Services Authority (DFSA) and NASDAQ have rules and regulations prohibiting insider trading and market abuse. The penalties for breach of such rules vary according to the type of breach.
A listed company should put effective and adequate systems and controls in place to comply with the obligations to control inside information set out in DFSA rules.
These rules require that the listed company establish a policy on the handling of inside information. The board of the reporting entity is responsible for ensuring the adequacy of that policy. The DFSA rules set out the market abuse provisions, which prohibit:
- disseminating false or misleading information;
- insider dealing;
- providing inside information;
- inducing persons to deal using inside information; and
- misuse of information.
A listed company may accidently disclose information that has not yet been published by way of market disclosure to third parties (eg, analysts, journalists and investors) or employees. Such accidental disclosure does not lead to a disclosure obligation to NASDAQ Dubai, as long as this information is not inside information.
However, if it is inside information a market disclosure must be made immediately to prevent any information asymmetry. This requirement does not apply if the third party with whom the information has been shared is subject to a duty of confidentiality (ie, if the selective disclosure is in accordance with the requirements for selective disclosures).
The DFSA has the power to suspend trading on NASDAQ Dubai with immediate effect or from a specified date and time. The DFSA may exercise this power where it considers that it is warranted in the circumstances or is in the interests of the Dubai International Financial Centre.
While the DFSA may require certain disclosures to be made, the obligation to ensure that inside information is disclosed to NASDAQ Dubai in a timely and clear manner is ultimately the responsibility of the listed company. Directors should be aware that they may be held personally liable for breaches of the relevant and applicable rules.
What tax liabilities arise in relation to the issue and trade of equity securities in your jurisdiction?
How can these tax liabilities be mitigated?