The process of a private company becoming a public company through the sale of stocks to the public is called an Initial public offering (IPO) in the UAE. IPO plays a vital role in making and empowering the country’s economy. It is an effective way of raising funds that are necessary for transforming a company’s plans into company growth.

The public share will increase in the company’s funds where the funds are raised from the public investors. This is done by issuing and conducting share subscriptions. The attorneys in the capital market will submit the required documents to the government authorities and once the approval is obtained the company will go for listing. 

The UAE law says that the company should be a legal entity of a public joint-stock company in order for the company to offer shares to the public. Usually, it is observed that limited liabilities companies will convert their legal form and become a public joint-stock company. This is done for offering company shares to the public. In the global market, this process is practiced to raise funds from the public.   

IPO regulating authorities in the UAE

The primary regulating authorities of IPO in the UAE are the Dept of Economic Development (DED) and the Securities and Commodities Authority (SCA). The securities and commodities authority has the power to confirm operations and implementation of public joint-stock companies. It also approves and supervises the public joint-stock company.

The SCA follows an open door policy where any company can select to go for becoming a public company but it has to meet certain criteria. SCA also resolves queries and provides support to the companies. Dept of Economic Development works together with SCA to resolve issues and approve Limited liability companies to public joint-stock companies.  

The company which intends to go for IPO listing should get approval from regulatory authorities like the Central Bank of insurance authority. It also should adhere to the rules of company law which is officially known as Federal Law number 2 of 2015. The SCA chairman will govern public offerings and thereby issue shares of public joint-stock companies. 

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Why IPO in the UAE?

There are many advantages for a company to go public and have investments from the public. After the IPO is involved there are many changes in the whole company’s outlook. There are many responsibilities once the company becomes a public joint-stock company.  

The following are the benefits of becoming a public company. 

  1. Access to capital
  2. Exponential market
  3. Shareholders monetisation
  4. Transparency
  5. Corporate identity

1. Access to capital

The company will get access to public money for its funding requirements. It will get a wide range of investors and this is not possible if the company has continued to be private.  

2. Exponential market

The company will have the advantage of acquisition and this is possible if the company is public. The market value of the company will grow and it will be extremely high than the private company. The company stock value will increase and the investor will participate in the growth of the company. 

3. Shareholders monetization

There will be a good growth of the company’s shareholders and their stake in the company after the IPO event completes. Appreciation of the shares through the growth of share price will happen and the present shareholders will monetize their stake in the company with the public listing. 

4. Transparency 

There are many diverse investors and the market will become transparent. The company will get many opportunities and benefits from the liquid market. The liquidity will enhance the transparency of the company. 

5. Corporate identity

As the company is listed and recognized on the stock exchange, the company’s goodwill shall increase. The credibility of the company, visibility and increase of new investors, clients and growth of business partners will give a corporate identity. 

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Requirements for IPO listing in UAE

The following are the requirements for making a Limited liability company into a Public Joint Stock Company

  • Promoters should not have less than 30% and not more than 70% of the company’s total issued capital
  • Follow minimum capital requirements that are required by GCC and UAE countries
  • Initial capital not less than AED 30 million
  • The company should be in operation for at least 2 financial years
  • Annual operations and distribution profits not less than ten percent of the company’s issued capita for 2 financial years before its conversion

Financial exchange markets in the UAE

There are three financial exchange markets in the UAE which are as follows. 

  • Abu Dhabi Securities Exchange
  • Dubai Financial Market
  • NASDAQ Dubai.

Both the Abu Dhabi securities exchange and Dubai Financial markets work together as a securities exchange market and this is done for securities trade and shares issued in public joint-stock companies. NASDAQ Dubai is a separate entity that is regulated by the Dubai Financial supervisory authority. It is a security supervisor and it falls within the jurisdiction of Dubai International Financial center.

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Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.

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