UAE urges family businesses to list on local exchanges

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The UAE is encouraging more family businesses to list shares on the country’s stock exchanges in an effort to facilitate succession in companies and provide more liquidity to local exchanges, a top official said.

“It’s encouraged a lot, we’ve seen family businesses structuring themselves to be able to partially or fully get into IPO [initial public offering]Ahmad Al Falasi, State Minister for Entrepreneurship and SMEs, told: the national on the sidelines of the Top CEO Forum in Dubai on Thursday.

“Once you’ve listed that company, the level of data that goes into the processes also makes it easier for succession, for legacies, because now you’re listed, you’re reporting and auditing, you’re in a shareholder structure that makes it a lot too.” kinder to the succession,” he said.

In addition, the listing of more family-owned companies that are “big names” and “big conglomerates” will bring significant liquidity to UAE stock markets, Mr Al Falasi said.

“Adding that liquidity… goes a long way,” the minister said.

However, some family business owners choose to retain control of the business, he said.

“It’s hard to understand that you can still be a family-owned company and be on the list… if you mention you’re not giving your business away, you become much more structured.”

The Abu Dhabi Securities Exchange, the second largest exchange in the Arab world after the Tadawul Stock Exchange in Saudi Arabia, more than doubled its market capitalization last year to a record 1.6 trillion Dh, making it one of the best performing exchanges worldwide.

Despite subdued IPO activity worldwide in the wake of the Russian war in Ukraine, which has revived equity and commodity markets, interest in IPOs in GCC markets has remained high. Higher oil prices and a strong economic recovery have boosted investor confidence and strengthened liquidity in the UAE’s capital markets.

Dubai, which aims to boost its stock market amid growing demand for IPOs in the region, announced plans last year to list 10 state-owned companies as part of its strategy to double the size of its capital market to Dh3tn and attract foreign investment.

Family businesses account for about 90 percent of privately held businesses in the UAE. The UAE Ministry of Economy said last year it is considering new policies to help family businesses grow as they are an essential part of the country’s ongoing transition to a more sustainable economy.

In January, the UAE issued a new governance law on family business ownership, further strengthening the sector’s contribution to the economy and facilitating the transition to successive generations.

The focus is now on the small to medium-sized segment of family businesses and provides them with guidance on best practices, said Mr. Al Falasi.

“What we’ve found increasingly difficult in the region is that third-generation family owners run the business as a sole proprietorship. We want them to structure the business in a way that uses continuity into the future – not necessarily happen until they reach the billions [stage]†

Consultations are underway with a group of small to medium-sized family businesses to understand their needs, Mr Al Falasi said.

Such companies emphasized the need for guidelines for structuring their businesses, access to affordable legal advice on structuring and changing the mindset about talking about succession across generations in a family business, he said.

Policymakers are encouraging more family businesses to go public by making markets more attractive and liquid, and adjusting regulations to make it easier for these companies to be listed, Al Falasi said, pointing to the Nasdaq Dubai Growth Market, a financial exchange launched in 2020. to help small, high-growth companies access capital markets.

The stock exchange allows listing of SMBs worth less than $250 million. Companies only need to be in business for one year, compared to three for Nasdaq’s main market, Dubai, and can sell a minimum of 25 percent of their equity, so the founders remain in control.

Updated: May 19, 2022, 13:20