Raising ownership of UAE company shares to 100%: Rewards and risks
UAE-based Amanat Holdings, a healthcare and education investment company, has recently received approval to raise the cap on foreign ownership of the company’s shares from 49% to 100%.
The company obtained the necessary approvals from the Securities and Commodities Authority (SCA), it said in a bourse filing on the Dubai Financial Market (DFM).
The amendment became effective on September 6.
Amanat follows a similar decision by shareholders of Dubai developer Emaar Properties, who also relinquished foreign ownership limits, prompting Economy Middle East (EME) to conduct the following interview with Rima Mrad, Partner, BSA Legal.
EME asked Rima the following:
Why should publicly-listed companies consider 100% foreign ownership schemes?
“Prominent real estate developer Emaar Properties has recently announced the abolition of the minimum contribution of UAE nationals and GCC nationals in the company. A general meeting of the company was held on 21st September 2022 where the new special resolution abandoning the foreign-ownership limit (previously set at 49%) was adopted.”
“According to the proposed resolution, “there is no minimum shareholding requirement for UAE nationals and GCC nationals in the Emaar Properties company, and there is no shareholding limitation for non-UAE nationals.”
“Apart from that, the company’s board has also recommended another special resolution to approve the increase of the share capital of the company to Dhs8.8387bn by issuing 659,050,967 fully paid-up shares at a nominal value of Dhs1 per share. Both special resolutions clearly represent the new vision of the company to increase foreign ownership and appeal to international investors.
What are the benefits of 100% ownership schemes for publicly-listed companies?
“Foreign ownership limitations restrict the amount a foreign company or individual can invest in a business/company in another country through buying its shares. As for the reasons usually presented in favor of foreign ownership restrictions, such limitations are used by national governments to increase economic rents and/or to maintain local control of resources.”
“On the other hand, there are some undoubtedly significant benefits for listed companies having no limitation on foreign ownership. First of all, such companies are fully open to the international trade markets which allow their stocks to become widely tradable. Opening towards international investors and international trade markets results in new investment opportunities, reinforces the trading/investing environment as much as it increases the appetite of already involved foreign shareholders.”
“In general, the possibility of full foreign ownership also makes the listed company more appealing in the eyes of both foreign and domestic investors. The stocks of the company will be more visible to any potential investor which will eventually lead to higher performance and competitiveness.”
“Last but not least, being exposed to new international markets will subsequently contribute to international trade standards being implemented. The above-mentioned apply with no difference to Emaar Properties after its announcement to adopt the special resolutions. Lately, the company seems to be increasing growth potential for existing and potential new shareholders. Moreover, Emaar Properties stocks have been recording high volumes and the price of the company’s shares went up in the days following the announcement of ditching the non-resident limitation. Regarding the long-term impact of such an action, the potential for a notable increase in the company’s liquidity should be highlighted.
What are the potential risks of such a move?
Emaar Properties has already 40 % foreign investor representation. Nevertheless, the liquidity of the company is expected to be even higher as foreign investors start showing interest in freshly issued shares.
Every action has its reaction and that applies twice as much when it comes to international stock markets. As far as there is probably no reason to expect any inherent danger associated with being fully open to foreign ownership, there are several risks that the company will eventually need to deal with including more volatility and more tendency to be affected by the international market trends and general international market conditions.
To conclude, in the GCC region, the possibility of full foreign ownership of publicly listed companies is still not that common. For example, within the UAE, Aramex was the first to allow up to 100 percent foreign ownership. We expect to see more companies adopting the change approach as Emaar Properties in the UAE and possibly in KSA, in the near future.