Dubai: A reduction in free float for an Initial Public Offering (IPO) is likely to encourage more companies to list on UAE bourses than overseas. The new law introduces corporate governance standards in line with the country’s international peers.

The new Companies Law, announced on Wednesday, has reduced the minimum free float for any company to go public, to 30 per cent from the earlier 55 per cent, a move that could help companies to list on bourses.

“This reduction is a positive step, and it was a big obstacle earlier for getting listings to the UAE and it was a reason they went to the London Stock Exchange. With that the local bourses would look much more attractive to do an IPO. This new rule would make it a lot easier and smoother here,” said Jaap Meijer, managing director at Arqaam Capital.

There were some exceptions made to this rule last year, when Emaar Properties was allowed to list up to 25 per cent of its malls business on the Dubai Financial Market.

“It [the new law] is expected to encourage financial markets and new IPO activity on UAE markets. The issuance of the law demonstrates the UAE government’s commitment to progress in this area and is evidence of the government’s view that the rule of law is vital to the modern economy which has developed in the UAE,” Husam Hourani, Managing Partner at the Middle East’s largest law firm, Al Tamimi & Company, in a statement.

Corporate governance

“Corporate governance is very important to investors and any improvements on that side would be always welcome,” Meijer said.

The law authorises a person to establish and own a single-person limited liability company whose owner shall only be liable for its obligations as per the capital stated in the articles of association under the limited liability.

The law also strengthens the corporate governance standards in terms of giving loans to company directors.

“The new law will bring significant improvements, particularly in the level of corporate governance expected of listed companies. The law will also modernise company rules and move the UAE towards best international practice and standards,” Al Tamimi’s Hourani said.

The issuance of the law was a culmination of consultation within the Emirati community and the UAE’s business and professional sectors over the past decade.

Optimal use

The new law will ensure the optimal use of production components of capital, administration, and employees with results that reflect on the future of the social life of citizens and residents of the UAE, Sultan Bin Saeed Al Mansouri, Minister of Economy, said in a statement on Wednesday. “The law aims to contribute to the development of the business environment and the country’s capabilities and economic status by organising companies based on global standards, especially those which relate to the rules of governance, the protection of the rights of shareholders and partners, the support of the flow of foreign investment and promotion of corporate social responsibility,” he said, adding that this would also contribute to strengthening the role of businesses that hold high position in the UAE’s development strategy, and in tune with its economic diversification policy.