CONVERSION AND DELISTING IN THE UAE
Authored by: Elsie Habib
Recent media coverage has turned to the topic of delisting in the UAE in light of the possibility of the first delisting of a company from the ADX. This area has been met with uncertainty with regards to how this might take place under UAE law and as yet remains untested.
- There is a major difference between a PJSC’s application for conversion from its legal form and ESCA initiating a delisting.
- ESCA can delist the securities of any PJSC at its sole discretion, however, this does not affect the legal form of the PJSC.
- Delistings occur either as a result of a company conversion from a PJSC into a PrJSC or LLC in which delisting will be part of the conversion process, or due to reasons stipulated clearly under ESCA rules and regulations.
- Following a conversion from a PJSC to PrJSC, shares would be removed from the public markets but remain transferable in private.
- Minority shareholders’ rights, where a company is converted from a PJSC to a PrJSC, followed by a delisting, are not affected with the exception of depriving them of the opportunity to exit a ready market as there is no limit on the number of shareholders in a PrJSC.
As a general rule, a UAE public joint stock company (PJSC) is required to list its shares on any of the UAE financial markets immediately after its incorporation. However, there are exceptions to this rule, exempting companies wholly owned by the federal government or the governments of the relevant Emirates from listing their shares on the UAE financial markets.
The differences between conversion and delisting
It should be noted that there is a major difference between a PJSC filing an application for the conversion of its legal form (i.e. they seek to convert into a PrJSC) and ESCA initiating the delisting of a PJSC at their sole discretion.
ESCA may, at its sole discretion, delist the securities of any PJSC due to reasons which are clearly stipulated within their rules and regulations. In the case of an ESCA initiated delisting, the PJSC maintains the same legal form and is still required to comply with the transparency and disclosure rules which are set out. ESCA may, on a case by case basis, urge the PJSC to rectify its situation in order that it can be relisted on any of UAE financial markets. It is important to note that the conversion of a PJSC into a PrJSC is not one of the reasons ESCA would initiate a delisting. During a conversion, delisting will normally occur.
Application for conversion
A PJSC considering conversion must file an application with ESCA requesting approval for the conversion. ESCA studies each application on a case by case basis and decides, at its sole discretion, whether to approve the conversion of the PJSC. In making their decision, ESCA takes into consideration, among other factors, whether the delisting might contravene ESCA rules and regulations or the UAE Companies Law. ESCA seeks to ensure that there are no contraventions, as well as assesses whether the conversion would be detrimental to shareholders' rights.
If ESCA decides that conversion of the PJSC is viable, the PJSC would then be converted into a PrJSC or LLC and the delisting from the UAE financial markets would then take place as part of the conversion process as PrJSCs and LLC are not public companies and are not listed.
Conversion therefore means that the shares would be delisted from public markets but would remain transferable in private. The shareholders of the PJSC would remain as such after conversion and delisting. Because of this, minority shareholders’ rights are not affected with the exception of depriving them of the opportunity to exit a ready market.
As there is no limit on the number of shareholders in a PrJSC, it can be owned by thousands of shareholders as a result conversion.
Following conversion, all shareholders have the right to sell their shares either through a financial broker registered within DFM or ADX or through advertisement in the newspaper. Shares would no longer be traded on public markets, however, the sale of shares will still be facilitated by the financial broker or through an offer appearing in a newspaper advert. Once the share sale transaction takes place, the shares should be registered in the name of the buyer by the Companies' Registrar.
There are a number of rules and regulations in force that regulate shares within PrJSCs as follows:
- Ministerial Decision No. 370 of 2009 concerning the Share Register of Private Joint Stock Companies.
- ESCA’s Board of Directors issued Decision No (33/R) of 2009 concerning the Regulations of the Activity of Private Joint Stock Companies Registrar.
The above resolutions set out conditions and requirements in relation to licensing procedures for the Companies Registrar of a PrJSC and also set out that the shares of a PrJSC should be registered with a Company Registrar duly licensed by ESCA.
At the time of publishing this article, the only entities licensed to act as Companies’ Registrar for PrJSC’s are ADX and DFM. To our knowledge, there are further applications for public joint stock companies under process with ESCA.