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Under the patronage of His Excellency Hamad Al Shamsi, Chairman of the Board of Directors of Abu Dhabi Securities Exchange, the Exchange organized its Third Annual Conference titled: “Conversion to Public Joint Stock Companies: Toward a Sustainable Partnership” today, October 26th, 2015 at St. Regis Hotel - Saadiyat Island, Abu Dhabi.
A large number of senior officials attended the Conference, in addition to businessmen, banks, public joint stock companies, private joint stock companies, consultancy companies among others.
His Excellency, Hamad Al Shamsi, opened the Conference with a welcome speech in which he described the economic development that has been achieved in the United Arab Emirates, and the achievements it accomplished on the level of global competitiveness and the reduction of its reliance on oil through economic diversification. He also pointed out that the Conference comes as a realization of Abu Dhabi Economic Vision 2030 which represents a road map for Abu Dhabi Securities Exchange towards achieving development. This Vision seeks to build an open, effective and influential business environment that is integrated into global economy. Moreover, His Excellency said that the Emirate of Abu Dhabi has been ranked in 28th position in the list of the world’s most important financial centers. The list is issued by the Z/Yen Group in September this year. He also pointed out the launch by Abu Dhabi Securities Exchange of an integrated package of some of the innovative smart services during the Exchange’s participation at Gitex. Among the most important of these services is “Sahmi” service which is a self-service window that enables the customer to finish his transactions by himself. This includes a special initial issuance service that can be executed in one minute using the ID card.
The Conference featured Mr. Daniel Gallagher, Former Commissioner of the U.S. Securities and Exchange Commission (SEC), as a keynote speaker. During the presentation he made at the Conference, Mr. Gallagher talked about the importance of the initial release at the capital market, and considered the statistics of the initial release as a measurement of the validity of the capital market and the country’s economy as a whole. He cited the American experience in order to emphasize the importance of the role of organizational bodies, laws and legislations that they set to encourage the initial public subscription market and make it more competitive so as to attract companies to be listed in the markets and obtain financing from capital markets instead of resorting to private property. In the United States, for example, and after a period in which American companies were reluctant to conduct public offering due the constrained laws and the non-encouraging legal environment that was followed by the global financial crisis, the American government issued the Dodd-Frank Act in 2010 which aimed to solve the structural problems that the crisis revealed and to face the regulatory risks that the financial markets face. However, the majority of statistics showed that this law has significantly increased the organizational burdens that the listed public companies bear. Therefore, Gallagher recommended that it is necessary to get rid of all the bureaucratic procedures and the burdens that prevent the companies from applying to obtain the necessary financing through public offering. He also pointed out that capital formation must be given priority in organizational and legislative goals. Furthermore, he pointed out the importance of establishing capital exchanges that target small and developing companies so as to provide them with liquidity which otherwise would not be available due to the rules that prevent these companies from offering their stocks to the general public and trade them in the stock market. Mr. Gallagher concluded his speech by saying that the flexibility and future vision that the UAE’s markets have enable it to always seek the establishment of the necessary rules that would help support the growth of small and developing companies and provide the platforms through which such companies can gain access to the capital they need.
With respect to the audience’s questions regarding the importance of interaction between the Capital Markets Regulation Authority and the markets, Mr. Gallagher said that this is among the most important issues, especially with respect to the self-regulatory organizations. The experience in the United States was that the authority, after a decade of giving the markets powers to regulate their members and set their own rules, the authority has recently started to tighten control over the markets and impose additional commitments on them. It also called for implementing a comprehensive review of the market’s structure and how its operations are regulated. The importance of this initiative was witnessed in the fact that many new structures and forms of trading platforms and mechanisms have emerged such as the alternative trading systems and non-transparent platforms (in which the trading data are not disclosed). This required the regulator to unify the organizational standards in order to make the competition fair between these platforms, and to provide the necessary protection and transparency for the investors. This meant it was necessary to reconsider the concept of self-regulatory organizations.
The session was moderated by Dr. Naser Al Saidi who pointed out the role of the private sector and its importance in the economic growth and development, especially in the gulf region in light of the decrease in oil prices. Part of the UAE’s strategy was to provide diversity in the resources of economic income and economic sectors, and to pay attention to the role of the private sector in the innovation and economic diversity fields, as well as creating new job opportunities. Dr. Naser expressed his opinion with respect to the necessity to diversify the finance resources that are available to private sector companies especially since banking is the source that represents the largest contributor to the financing of these companies. However, this source is not sustainable; therefore, it was very important to facilitate access to capital markets. He also anticipated that raising the UAE’s rating in global indices, such as the MSCI, would attract more international investors, which means that the companies would need to apply the best global standards with respect to corporate governance and disclosure. Moreover, he pointed out the facilitations granted through the modifications made on the corporate law which encourage family companies to consider the conversion to public joint stock companies. Among these facilitations was the reduction of the public offering percentage from 55% to 30% only, as well as the permission to use a much more facilitated and less expensive pricing mechanism such as the Book Building mechanism. He also emphasized the importance of the youth in the innovation process and the necessity of effectively involving them in the economic system through securing the necessary financing for innovative projects.
Members of the session discussed how to provide incentives to the family companies to convert, and how to support the private sector in order to benefit from its economic role. Dr. Rainer Geiger, Former Director of the OECD Investment Program for MENA Region, pointed out that the family companies, as well as small and developing companies are considered a driving factor that pushes the economy forward. He also highlighted some of the statistics that describe the scale of this sector’s contribution to the economies of developed and developing countries alike. He mentioned that these companies contributed with almost 42% to the total workforce and national income for the countries of the Organization for Economic Co-operation and Development, and that it represents nearly 10% of the seven major countries as well as 20% of the economies of developing countries. Moreover, he shed light on the experiences that many countries, such as Morocco and Egypt, have had with respect to applying special governance rules for these companies. He also described France’s experience with respect to providing direct financing through the establishment of general lending institution and providing credit brokerage services which helped maintain hundreds of thousands of jobs. Moreover, he talked about the experiences of many European exchanges in facilitating the private offering and direct offering processes for specified groups of qualified investors, as well as the Indian exchange experience with respect to allowing small and developing companies to be listed without public offering. Furthermore, he pointed out that the most significant challenges that must be faced in this regard in the Middle East is the necessity to set “Smart Regulations” that would help in the growth of business in a dynamic and effective manner.
Mr. Rainer also presented an innovative proposal to establish a financing platform for small and developing companies through knowledge exchange, provision of business services, guidance, training, required financing and the mechanisms for participating in taking risks which contribute to the elimination of major obstacles facing the listing process such as the reduction of disclosure requirements and the high costs of the listing process itself. This platform would be a listed public joint stock company in order to obtain the financing that its small and developing companies need.
On the other hand, His Excellency Salem Khaza'leh talked about the factors that prevent many companies from conducting public offering most notably the institutional changes that need to be applied, abandoning control over the company, reducing the current shareholders’ ownership, the cost of offering and listing, the time required, the change in the way reports are prepared, legal responsibility and disclosure requirements. He also pointed out the importance of the existence of trust in the legal and procedural system by the companies, and expressed his opinion by saying that most of these fears indicate that these companies have limited view since the corporate law takes into consideration the most important issues that concern them, including the protection of minority rights and the increase in the level of control by the regulatory bodies which protect the rights of the shareholders, the employees, or other stakeholders. These companies are the most in need to achieve an important principle which is the separation between ownership and management in order to increase the efficiency of their performance, improve their level of profitability, andan added value to the owners’ shares.
Moreover, Khaza'leh shed light on the Jordanian experience in an attempt toa new form of companies known as “Private Joint Stock Companies” as a transitive stage to prepare private companies for conversion. The advantage of these companies is that the company’s Articles of Association takes priority over the law whereby the excellent stocks categories which carry preferential rights over normal stocks keep all the rights stated in the company’s Articles of Association even after listing, and exchanges must be able to accommodate these differences.
Mr. Hussein Arkan share his opinion in the session regarding the reasons why companies refrain from conducting public offering most notably the lack of advantages and incentives that encourage companies to offer such as tax exemptions, or the availability of sufficient and proper financing in the market. He also shed light on the experience that Istanbul Exchange has applied in partnership with all of the concerned parties. The Exchange presented a national initiative to encourage the public offering process for private companies in order to deal with the fears that these companies encounter or suffer from which prevent them from engaging in the offering. The regulatory authority of the capital market discussed with the companies and understood their points of view. The Exchange offered an awareness program for these companies, and the legislator modified the corporate law, whereas the market made different sectors open for listing so as to allow small companies which do not meet the standards of listing in the major market to be listed in a market that has lower standards or requirements. Moreover, the market offered new tools and mechanisms that help secure liquidity for trading of these companies’ stocks including “The Market Maker” to sell, purchase and provide prices on stocks that are not extensively traded, as well as offering financial tools in the market such as permissions, futures, option contracts, allowing multiple offerings programs, and allowing lending and borrowing processes of securities. Additionally, both the authority and the market reduced the offering, registration and listing fees.
The participants in the session emphasized the importance of maintaining continuous communication between the organizers and the companies in order to recognize their needs, provide them with the proper support and make sure that the laws and systems being developed do not limit or constrain the small and developing companies from obtaining proper financing. This also requires that the legal system and environment be integrated and consistent, including the corporate law and offering and listing regulations.
The session was moderated by His Excellency Dr. Obaid Al Zu’abi, Deputy CEO at the Securities and Commodities Authority. The speakers discussed the importance of having family companies consider conversion to public joint stock companies since many of these companies do not continue beyond the third generation.
In the session, the participants shed light on the importance of the role of corporate governance in terms of achieving added returns and values to the shareholders and provide evidence on the feasibility of their investment in public joint stock companies.
Dr. Abdel Salam Al Baloushi, Head of the Legal Affairs Department at Abu Dhabi Securities Exchange, talked about the characteristics of the government’s ownership in public joint stock companies and how the new corporate law has facilitated the establishment of public joint stock companies by the federal government or the local government in the state. He recommended that there should be a clear plan for the conversion of government-owned companies.
On the other hand, Dr. Mathhar Farghali, Former Legal Advisor at the Securities and Commodities Authority, talked about the importance of having private companies enter the market since this will help add more depth and momentum to it. He also pointed out that the Securities Authority has realized that; therefore, it worked hard to develop the legislations and reconsider the laws that hinder these companies from entering the market. Moreover, he pointed out the modifications made in the new corporate law which contributed to the elimination of many obstacles, including the number of founders, the percentage of the shareholders’ contribution during the establishment of the company, and the alteration of the evaluation and pricing process. Khawar Ansari from the International Finance Corporation explained the importance of corporate governance in evaluating and increasing the company’s value.
The third session was moderated by Mr. Fawzi Irshid. In this session Julian Macedo talked about the technical steps in the conversion of companies to public joint stock ones. Some participating companies including Manazel represented by its CEO, Hasan Fahmi, Agthia represented by its CEO Iqbal Hamza, and New Medical Center represented by Mr. Brakash, discussed their experiences and their journey toward growth and development as listed public joint stock companies.
