Now is a time when there is a real focus on transparency in
financial markets and evidence of opportunistic acquisitions of
equity stocks depressed by negative market sentiment. For both
these reasons, it is timely to examine the current disclosure
requirements governing the trading in shares undertaken by the
existing shareholders of a Public Joint Stock Company (PJSC)
("Investor/s") listed on either the Abu Dhabi Exchange
(ADX) or Dubai Financial Market (DFM).
It is important to appreciate that there are three licensed stock
exchanges operating in the United Arab Emirates. Two are onshore
exchanges namely the ADX and DFM. The third stock exchange is
NASDAQ Dubai, the international financial exchange located in the
Dubai International Financial Centre (DIFC). NASDAQ Dubai is
regulated and licensed by the Dubai Financial Services Authority.
As such, it has its own sets of rules and regulations and is
subject to a discrete legal regime.
In contrast, the ADX and DFM are each regulated by the
"onshore" regulator, the Securities and Commodities
Authority. This article is confined to examining the rules applying
to the onshore markets (the "Market"), where most equity
stocks are listed.
Where Are the Rules?
The detailed disclosure requirements are contained in the
Resolution No (3) of 2000 regarding the Regulations as to
Disclosure and Transparency (the "Regulations") issued by
the Securities and Commodities Authority (SCA).
Why Do the Rules Exist?
The Regulations have been placed to establish a stable and
well-built foundation for the dealings with listed shares of PJSCs
in addition to ensuring the transparency and the protection of the
investors which allows making informed decisions about the PJSC. It
further ensures that there is no change in real control of a PJSC
by stakeholders without the supervision and involvement of the
regulators, and the knowledge of the Board, shareholders and the
insider market.
What Notifications Are Expected From the
Investors?
There are a number of notifications required from an Investor when
increasing its shareholding in a PJSC listed on the Market. The
notifications depend on the size of the stake the Investor is
seeking to acquire. It also depends on the legal personality of the
Investor. Such disclosure requirements are imposed on the acquirer
of the shares. The Regulations did not address the disclosure
requirements imposed on a seller in the event of disposition of the
shares.
Ownership amounting to 5% or more by a natural
person
Article 3 of the Regulations requires an Investor to immediately
notify the Market in events where such Investor owns together with
his minor children a percentage equivalent to 5% or more of the
shares of the listed PJSC. Article 3 applies where the Investor is
a natural person and not a legal entity.
Ownership amounting to 5% or more
Article 4 of the Regulations requires an Investor to immediately
notify the Market in events where such Investor owns 5%.
("Every juristic person which owns what amounts to 5% of the
shares of a company listed in the Market shall immediately notify
the Market thereof.")
Article 4 applies where the Investor is a legal entity. The
notification required under this Article applies where shares
representing 5% of the listed shares are owned.
Ownership amounting or exceeding 10%
The disclosures required under Article 5 of the Regulations may be
divided into two sections. The first, dealing with natural persons.
Pursuant to the said Article, any natural person owning by himself
or together with his minor children a percentage equivalent to 10%
or more in the parent, subsidiary, affiliate or group entity of the
listed company must immediately notify the Market thereof.
The same Article also requires such obligation from legal entities.
As such, in events where the Investor is a juristic person, which
owns a percentage equivalent to 10% or more in the parent,
subsidiary, affiliate or group entity of the listed company, then
such Investor must immediately notify the Market thereof.
Ownership amounting to 30% or more
Under Article 6, the Investor, under certain circumstances, a
natural person or a legal entity, is required to obtain the
preapproval of the Director-General of the Market before placing
any purchasing order. This restriction applies when such Investor
is already a holder of 10% or more of the listed shares, and
subsequently seeks to purchase 20% or more of the listed shares of
such PJSC.
The Director General of the ADX or DFM (as applicable) may, after
consultation with SCA, prohibit any such transaction if in his
opinion, prejudice to the "interest of the national
economy" would ensue from it.
Even though Article 6 requested the disclosure requirement when an
Investor holding 10% in a listed PJSC seeks to purchase 20% or more
of the listed shares of such PJSC, it is most likely that the same
disclosure requirement would apply in the event that the Investor
wishes to acquire a smaller percentage than the 20% limit
stipulated in the Article in harmony to the spirit of the
Regulations which aims to maintaining the transparency and
integrity when trading with shares of a listed PJSC.
Where Article 4 or 5 applies, notification must be made immediately
upon attaining ownership of the shares of the PJSC. Article 6,
however, requires notification prior to placing the purchase order
for on floor execution. Although the above Articles refer to
existing shareholders in a PJSC, in our view, the provisions also
apply to potential investors who do not already have a shareholding
in the company. The SCA and the Market would almost certainly
require new investors to also adhere to these requirements.It may
be noted that the Regulations did not formulate a criteria for
differentiating between legal ownership and beneficial ownership of
the shares. The Regulation has referred to the owner of the shares,
whether a natural person or a juristic person without expressly
defining the owner. Nevertheless, the owner of the shares is the
person or corporate entity who's name and Investor Number is
registered in the electronic share register of the PJSC.
Additional Requirements Applying to UAE Banks or Financial
Institutions
It is worth mentioning that Article 7 of the Regulations imposes an
additional set of obligations where the Investor is a bank or a
financial institution licensed by the UAE Central Bank. In such
event, the pre approval of the Central Bank must be obtained before
entering any transaction leading to acquiring 5% or more of any
listed shares.
The preapproval of the United Arab Emirates Central Bank is
entirely additional to the notifications and/or preapprovals
required under Articles 4, 5 and 6 above, and does not supplant
these other requirements.
Conclusion
The disclosure obligations outlined above constitute the main and
basic disclosures required by the Regulations from Investors.
As yet, there is no comprehensive set of rules in existence
providing a blueprint for the takeover of companies listed on
onshore UAE markets. The development of a legal framework
regulating changes in control of listed companies is the next
logical step in the development of the optimal legal environment
for UAE financial markets.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.