Decree on the listing of public joint stock companies incorporated in the UAE is announced

Sheikh Mohammed Bin Rashid Al Maktoum, Ruler of Dubai, recently issued Decree no. 3 of 2021 On the Listing of the Stocks of Shareholding Companies in the Securities Market in the Emirate of Dubai (Decree) on 26 January 2021, which came into effect on 4 February 2021.

The Decree requires public joint stock companies incorporated in Dubai (including those incorporated in free zones) to list their shares in the securities markets in Dubai, including the Dubai Financial Market and NASDAQ Dubai stock exchanges (Local Market), subject to any federal legislation in force and to meeting the listing requirements and conditions of the Local Market.

Public joint stock companies that are incorporated in a UAE Emirate other than Dubai (Non-Local PJSCs), must list their shares on the Local Market within one year of (i) their annual profits or returns arising from business activities in Dubai have reached 50% or more of total annual profits or returns (Profit Test); or (ii) when 50% or more of their total assets are located in Dubai (Asset Test), and in each case, subject to having met the listing conditions and requirements of the Local Market.

The Decree does not clarify whether the companies subject to the Decree would be required to continuously attempt to list their shares on the Local Market having first failed to meet the conditions and requirements of the Local Market for listing. Additionally, the Decree is silent on whether Non-Local PJSCs would be required to list their shares on the Local Market after meeting the Profit Test or the Asset Test in one financial year, failing to meet the listing requirements of the Local Market in that year and failing to pass either the Profit Test or the Asset Test the next financial year. Lastly, the Decree does not specify the percentage of shares public joint stock companies must float on the Local Market; a strict reading of the Decree would require a 100% float, which may disincentivize Non-Local PJSCs from conducting further business in Dubai so as not to inadvertently meet the Profit Test or the Asset Test.

The Decree does not prevent public joint stock companies from listing on a foreign exchange, subject to having first listed on a Local Market. Therefore, public joint stock companies that are subject to the Decree intending to list on a foreign exchange may do so in tandem with a listing on a Local Market, subject to have completed the listing on the Local Market first.

Although IPO activity in the UAE has been quiet in the past few years, we have seen an uptick in enquires in relation to IPOs in the UAE recently and expect this to continue particularly given the launch of the NASDAQ Dubai Growth Market stock exchange in early 2021, which allows companies with an operating history of at least one year (compared to three years for NASDAQ Dubai's main market) and a valuation below USD250,000 to list as little as 25% of their shares on the market.

If you have any queries regarding the implications of the Decree or require any guidance around compliance, please contact Richard Hughes or Philippe Habib