Al-Mirsal

5 Ways to Protect your Business from a Cyber Attack

Posted in Qatar, Saudi Arabia, Technology, United Arab Emirates

Data protection in the Middle EastGlobal cyber-attack threats stand at the highest ever recorded level, jumping 14 percent from 2012 to 2013 (Cisco 2014 Annual Security Report). Furthermore, a recent Microsoft Security Intelligence Report found that operating system infection rates in the GCC countries were almost twice the worldwide average, with up to 13 computers out of every 1,000 being infected.

The general lack of cybercrime disclosure has made measuring the financial impact of cyber breaches challenging. Reporting of cyber attacks remain low as companies fear significant financial losses that might be incurred in litigation resulting from security breaches. Yet the US and Europe are set to take a tougher stance on cybercrime disclosure as information sharing becomes a vital component of creating a more robust cyber security strategy.

As cybercrime continues to evolve and develop, businesses need to ensure they combine effective technology, proactive strategy and qualified and diligent staff to best protect against cyber attacks.

1. Governance: Cyber attacks require an integrated and cross-functional incident response involving IT Security, Communications, Business and Legal representatives and strong project management.

2. Forensic Analysis: Businesses need to consider engaging independent forensic experts to investigate, evaluate and report on any perceived intrusion.

3. In-House Training: Test and improve the incident response function by training IT, legal, audit and risk management teams – ensuring key personnel are familiar with the issues faced  and can anticipate the legal and technical risks arising from an attack.

4. Contracts: Organisations should understand their contractual and legal reporting requirements.

5. Cyber-insurance: Insurance is an important tool for businesses in managing and transferring risk. It is anticipated that businesses in the Middle East will begin to invest in cyber-insurance as awareness of cyber vulnerability increases.

Protect your business from cybercrime. Learn how by joining Latham & Watkins at our complimentary Cyber Attack Masterclass in Abu Dhabi and Dubai in October 2014.

We have convened a panel of experts – Gail Crawford (Partner, Chair of the Data Privacy Committee and Co-chair of the Internet and Digital Media Industry Group, Latham & Watkins LLP), Seth Berman (Managing Director, Stroz Friedberg), Andrew Moyle (Partner, Chair of the Global Outsourcing Practice, Latham & Watkins LLP) and Brian Meenagh (Associate, Latham & Watkins LLP) – who will guide you through an interactive ‘real life’ scenario that will help you identify the critical elements of an effective incident response plan.  Click here for more information.

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Top 3 Employment Issues in the United Arab Emirates

Posted in Employment, United Arab Emirates

The Dubai Chamber of Commerce and Industry has reported a 24 percent increase in newly registered companies since last year; in part due to the recent successful World Expo 2020 bid, among other positive economic forces.

As companies look to establish in the UAE, the Gulf state’s economy is expected to boom across many sectors including trade, logistics, tourism and finance, in the process creating thousands of jobs.

The following are 3 important issues to consider regarding employment in the United Arab Emirates (but expert advice should  be sought in relation to these and all other employment law issues in the region):

1. Immigration. All non-UAE nationals must obtain a work permit and residency visa which enables them to live and work in the country. This is obtained through employer sponsorship (or a local sponsor), which is registered with the Ministry of Labour. If an employee is employed by an organization which is based in a Free Zone, such as the Dubai International Finance Centre (DIFC) or Jebel Ali Free Zone, the free zone authority will be the employee’s sponsor.

2. Employment Termination. Following a probationary period lasting up to 6 months, generally speaking, employees are entitled to a statutory minimum notice period of 30 days, unless they are being dismissed for one of the permitted reasons such as persistently failing to perform their duties. If there is a dispute relating to employment/termination, it should be raised with the Ministry of Labour, which can submit the matter to court if necessary. Employers may be ordered to pay compensation of up to three months’ salary if it is deemed that the employee was dismissed without fair reason.

3. Employee Benefits. Employees are entitled to 30 calendar days paid holiday after being employed for one year, fully paid sick leave for the first 15 days of sickness absence and basic health insurance. The UAE government does not collect income tax, however, with respect to UAE nationals, both the employer and employee are required to make contributions to the General Pension and Social Security Authority. Employees who have provided more than one year’s service may be entitled to an End of Service Gratuity (ESG).

Read about these and other employment considerations in the UAE in a memorandum authored by Latham & Watkins partner Stephen Brown.

Download our guide to the legal system and laws in the UAE: Doing Business in the United Arab Emirates.

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3 Changes in Europe’s Energy Policy that Offer Lessons and Opportunities for the Middle East

Posted in Oil & Gas, Regulatory

Energy Policy

The European Union is seeking to re-regulate Europe’s energy sector to improve security of supply, sustainability and competitiveness. Energy transformation in Europe has exposed the shortcomings of over-regulation and national-centric policy, providing the Middle East with valuable lessons to manage supply, competition and future investment in its own market.

1. Supply Diversification: Shale gas development in North America has exemplified supply diversification. Yet opinion on shale remains divided in Europe as environmental concerns are often perceived as outweighing diversification gains. The EU has enabled countries to pursue their own national policy on unconventional resource development by publishing environmental requirement guidelines earlier this year. The Middle East is host to the world’s largest energy producers and exporters with abundant conventional reserves. Yet with supply, export relations and policy impacted by the unprecedented growth in unconventional resource development, Middle East energy stakeholders may begin to explore their own unconventional deposits or invest in global shale plays.

2. Regional Integration: Historically, the EU has approached energy targets and supply mix from a national perspective. Yet an integrated and regional approach would be more sustainable and would allow the region to tap into generation and distribution capacity where it is located. Similarly, the Middle East has not demonstrably integrated its national energy markets with GCC states independently pursuing development and distribution projects to reach their own national targets. However, the GCC Interconnection Authority (GCCIA) is currently developing an interconnection grid, a project often referred to as the backbone of GCC energy cooperation.

3. Energy Assets: As the EU continues to face significant market uncertainty, Europe’s energy leaders are shifting their strategy to focus on core geographic markets and core business operations. This has resulted in the sale of certain network (distribution and transmission) and generation assets. To date, these assets have typically been repatriated and sold back to states (for example, Hungary is nationalizing assets) or being acquired by funds that are capitalizing on Europe’s distressed energy assets. As such, Europe’s key energy companies scale back their operations, expansion opportunities are being created for cash-rich Middle East energy stakeholders with global ambition.

Do you want to know more about unconventional resource development?  Please join Latham & Watkins and AmCham Abu Dhabi at our complimentary seminar, The Energy Revolution on the 24 September 2014 at the Rosewood, Abu Dhabi.

A dedicated team of Latham specialists – Mike P. Darden, Robin Fredrickson, Lars Kjølbye, Javier Ruiz Calzado, David Blumental, Villiers Terblanche and Eyad Latif – will discuss policy and global trends in unconventional resource development. Click here to register.

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Saudi Capital Market Authority Publishes Draft Rules for Qualified Foreign Financial Institutions Investment in Listed Shares

Posted in Capital Markets, Saudi Arabia

Following last month’s announcement by the Saudi Arabian Capital Market Authority (the CMA) of its proposal to permit participation by qualified financial institutions directly on the Kingdom’s stock exchange (the Tadawul), the CMA has now published its Draft Rules for public consultation.

The Draft Rules include detailed provisions relating to qualified foreign investor (QFI) eligibility, assessment and approval process of investment applications by QFIs, investment limits on shares and the procedure for applications. The Draft Rules represent a significant step towards the liberalisation of the Tadawul, and the opening up of the Kingdom’s capital markets to foreign investment.

To read more about the Draft Rules and other ongoing requirements, please click here.

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New EU Sanctions Target Russian Oil Sector, State-Owned Banks and Military Exports

Posted in Banking and Finance, Capital Markets, Oil & Gas, Technology

The European Union (EU) enacted Council Regulation (EU) No 833/2014 (the Regulation), which contains ‘Stage 3’ sanctions against Russia. These sanctions resemble – but in other ways are different – from the latest US sanctions, and they amount to the stiffest anti-Russian actions taken by Europe since the end of the Cold War. Perhaps most significantly, the EU’s new sanctions are targeting sectors in Russia’s economy which are not directly connected to events in Crimea and eastern Ukraine, as seen below:

1. Technology Exports for the Oil Industry. Though the EU will not target Russia’s natural gas sector, it has implemented restrictions on the export to Russia of certain ‘technologies’ used in deep-sea drilling, arctic exploration, and shale oil extraction.

2. Access to EU Capital Markets. Article 5 of the Regulation is restricting access by certain Russian State-owned banks (those which are at least 50 per cent owned by the Russian state), such as Gazprombank, VTB Bank, VEB, Rosselkhozbank and Sberbank, from EU capital markets.

3. Exports to Russia’s Arms Trade. The EU has now barred new contracts for arms imports and exports between the European Union and Russia. Article 2 of the Regulation also prohibits bars exports of dual-use goods and technology to Russia for military-end use.

Further information on the EU’s latest sanctions on Russia can be found here.

You might also be interested in:

Ukraine Crisis Update: US and EU Expand Sanctions, Restrict Certain Energy-Related Exports to Russia (July 30, 2014)

Ukraine Crisis Update: US Imposes New Sanctions on Major Russian Banks and Energy Companies (July 18, 2014)

Ukraine Crisis Update: US and EU Expand Sanction Lists; US Imposes Export Restrictions (April 29, 2014)

Ukraine Crisis: US Expands Sanctions to Target Certain Russian Business Interests, Broadens Framework For Future Sanctions (March 21, 2014)

Ukraine Crisis Update: US and EU Expand Sanctions (March 18, 2014)

Ukraine Crisis: US and EU Respond with Targeted Sanctions (March 7, 2014)

Photo: Latham & Watkins LLP

How Project Bonds Can Release Asset Value

Posted in Capital Markets, Project Development and Finance

Whilst project bonds have for some time been a popular source of financing for projects in the US, they have historically been slow to gain momentum in other parts of the world, including the Middle East.

A number of explanations have been advanced for this – in the Middle East, the deep pool of bank market liquidity for Middle East projects, supplemented by funding from export credit agencies and development banks, has generally been sufficient to meet financing requirements.

However, more recently, project sponsors have become increasingly focused on the need to release bank lending capacity that may be locked up in operational projects, in order to fund the construction of new projects. At the same time, institutional investors (particularly US-based pension funds, asset managers and similar investment funds) have focused on emerging market project bonds as a long-term asset class that matches their long-term liabilities profile, and offers a better yield than can be achieved in the low interest rate environment prevalent in developed markets.

These factors have resulted in a renewed impetus for the project bond market in the Middle East, as highlighted by the recent Shuweihat 2 project bond issuance.

Read more about the development of project bonds in the Middle East here.

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Saudi Opens Market to Foreign Financial Institutions

Posted in Capital Markets, Saudi Arabia

In a long anticipated measure, the Saudi Council of Ministers (which is the highest authority in the Kingdom) issued a resolution on 21 July, 2014 authorizing foreign financial institutions to directly buy and sell stocks listed on the Saudi Stock Exchange (Tadawul). The resolution also authorized the Saudi Capital Market Authority (the “CMA”) to set the timing and rules for such participation. On July 22, 2014, the CMA announced that it will publish draft rules for foreign financial institution participation next month, which shall include a 90 day public consultation period. The CMA plans to implement the final rules before the end of 2014, and open the market for foreign financial institution investment during the first half of 2015. 

Currently, trading of stocks on Tadawul is restricted to Saudi nationals, GCC nationals and foreign expatriates holding valid resident permits in the Kingdom.  At present, foreigner financial institutions may only invest in the Saudi market through total equity return swap agreements with local brokerage firms and mutual funds.

Some key issues resulting from such authorization include:

Classification of Qualified Foreign Investors

Both the Council of Ministers resolution and the CMA announcement refer to the authorization being for “foreign financial institutions” to trade on Tadawul, but it is not yet clear what additional requirements will be set for determining which foreign financial institutions will qualify to directly access the market and on what basis.  Presumably, qualification will include evidence that the foreign financial institution is licensed in its home jurisdiction and evidence that the foreign financial institution is otherwise “sophisticated” (which could include a minimum amount of assets under management or minimum length of operating history).  Such qualification criteria is expected to be included in the rules which will be published by the CMA.

Maximum Foreign Ownership

Foreign ownership of shares issued by a Saudi listed company may also be subject to certain limitations and ceilings applicable to (i) each foreign financial institution, and (ii) the overall foreign ownership of such shares.  In addition, certain shares of Saudi companies might also be excluded from foreign investment (e.g. Saudi real estate companies investing in real estate projects in the two holy cities, Makkah Al Mukkaramah and Al Madinah Al Munawarah).

Income Tax

The Saudi Income Tax Law (Art. 10) states that capital gains realized from disposal of securities listed on Tadawul is exempt from income tax.  It is yet to be determined whether the Department of Zakat and Income Tax (DZIT), the regulatory authority responsible for enforcing the Income Tax Law, will extend the said exemption to apply to foreign financial institutions. It is worth noting that at present, capital gains realised by foreign financial institutions through total equity return swap agreements with local brokerage firms are subject to (i) a 20% capital gain tax, and (ii) a 5% withholding tax.

Debt Capital Markets

While still a nascent market, there are a number of publicly listed Islamic debt instruments (sukuk) which trade on Tadawul.  Both the Council of Ministers resolution and the CMA announcement only refer to opening of trading “stocks” listed on Tadawul, and do not refer to other securities traded on Tadawul.  Therefore, it is anticipated that the rules which will be published by the CMA will be limited to regulating the trading of equities by foreign financial institutions on Tadawul and trading of debt instruments will remain limited to Saudi and GCC nationals, unless separate authorization and guidelines are published.

Mergers & Acquisitions Regulations

The CMA issued the Mergers and & Acquisition Regulations which set forth general merger and acquisition provisions applicable to listed companies.  These regulations apply to all mergers and acquisition transactions of companies listed on Tadawul where there is: (a) a restricted purchase of shares; (b) a restricted offer for shares; (c) a takeover offer; or (d) reverse takeover.

It will be interesting to see whether the new CMA rules would enable foreign financial institutions to carry out takeover offers of Saudi listed companies.

Participation in New Subscription of Shares

The Council of Ministers resolution and the CMA announcement are both silent  as to whether foreign financial institutions may participate in Saudi initial public offerings (IPOs), whether taking the form of sale of shares or issuances of new shares.  At present, only Saudi nationals may participate in IPOs.  It will be interesting to see whether the new CMA rules would enable foreign financial institutions to participate in such IPOs.

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Top 4 Innovations Driving Growth in the Global Sukuk Market

Posted in Capital Markets, Islamic Finance, Malaysia, Qatar, Saudi Arabia, United Arab Emirates

The Sukuk Opportunity

Total Sukuk issuances for 2013 stood at approximately US$120 billion and the Sukuk market is likely to sustain double-digit growth in the coming two to three years with assets in Islamic finance expected to reach US$2.8 trillion by 2015.

The growth of the Sukuk market has allowed investors to diversify their portfolio and invest in credit that they would not otherwise have access to, such as Islamic institutions, which only raise funds in a Shari’ah-compliant manner. The future of the Sukuk market is one of innovation, where new assets, structures and markets continue to create new opportunities for investors. Based on our experience and deal flow from 2013 and first half of 2014, we expect to see four main trends continue to develop in the Sukuk market, namely:

  • Longer Term Funding: The financial crisis generated greater awareness in the Middle East on the advantages of longer term funding options. Historically, market perception assumed that getting conventional investors in the US to invest in long-term Sukuk would be time-consuming and a largely unsuccessful endeavour. However, Saudi Electricity Company successfully issued the world’s first international 30-year Sukuk in April 2013, which was issued to investors in the US pursuant to Rule 144A of the Securities Act 1933, as amended, which has provided assurance to the market that US investors are becoming increasingly willing to invest in longer term Sukuk. The success and volume of interest shown by global investors in the inaugural 30-year international Sukuk of Saudi Electricity Company and the subsequent 144A Sukuk issuance by the company in April 2014, means that these issuances will no doubt be replicated by other companies in the Middle East and Asia seeking to obtain longer term financing.
  • Issuance of Innovative Sukuk Instruments: Abu Dhabi Islamic Bank kick-started this innovation when it issued US$1 billion worth of additional Tier 1 capital certificates in 2012, representing the world’s first Basel III compliant Tier 1 Sukuk issuance. This ground-breaking issuance has paved the way for other banks in the Middle East and Asia, both Islamic and conventional, to follow their lead and has shown that Sukuk issued for the purposes of capital raising can generate significant investor demand among both conventional and Islamic investors. Most recently, Latham advised Banque Saudi Fransi on its SAR2 billion Tier II Sukuk issuance through a private placement in the Kingdom of Saudi Arabia.
  • Increased Use of Intangible Assets: Ooredoo successfully issued US$1.25 billion Shari’ah-compliant Sukuk under its US$2 billion trust certificate issuance program, the first Sukuk issued in the Middle East that utilized an innovative “airtime” Sukuk structure. The transaction signifies the market’s increasing acceptance of intangible assets as the basis for Shari’ah-compliant Sukuk issuances and signifies a rapidly evolving market for Shari’ah-compliant products in the Middle East. The increased use of intangible assets in Sukuk structures should serve to widen both the base of issuers, and the frequency with which they can access the Sukuk market.
  • Growth in Cross-Border Sukuk: Gulf issuers are beginning to tap into Malaysia’s highly liquid Sukuk market, the world’s biggest Sukuk market which accounts for appropriately 65% of all Sukuk issuances. Al Bayan Group Holding Company was the first Saudi issuer to issue a Ringgit denominated Sukuk, with the issuance of RM200 million Sukuk Wakalah due 2016 under a RM1 billion Malaysian Ringgit Sukuk Programme. The ringgit is fast becoming a growing, credible alternative to the US dollar for non-Malaysian issuers. This trend is facilitating more interdependence between the Asian and GCC Sukuk markets as GCC issuers look to benefit from Malaysia’s large and diversified pool of investors and available liquidity.

Click here to read more about the future of the Sukuk market and the development and management of an Islamic debt portfolio.

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How the GCC Can Boost Confidence in its Local Exchanges

Posted in Capital Markets, Qatar, Saudi Arabia, United Arab Emirates

GCC ExchangesThe Gulf Cooperation Council (GCC) countries accounted for IPO issuances valued at US$1.1 billion in 2013, according to Bloomberg. Notably, Qatar Exchange bounced back this year with the successful IPO and listing of Mesaieed Petrochemical Holding company Q.S.C. (a Qatar Petroleum Subsidiary), the first IPO in Qatar since 2010 and the first under the current listing rules of the Qatar Financial Markets Authority.

With momentum returning to local exchanges combined with increasingly favourable market conditions, the GCC IPO market is expected to post strong growth in 2014.

Top 3 Drivers of Middle East IPO Growth

  1. Increased investor confidence in GCC IPO markets.  Given the lull experienced in regional IPO activity, companies have adopted a cautious approach when considering listing shares. A demonstrable track-record of successful listings on the local exchanges will entice potential issuers who are seeking access to capital.
  2. MSCI upgrade. Both the UAE and Qatar were recently upgraded from “frontier” to “emerging” market status by MSCI, which is among the criteria used by a large number of institutional investors and private equity funds to identify markets in which they can invest. It has been reported that the upgrade may draw as much as US$500 million of new investment into Qatari and UAE securities with the entry of foreign institutional investors and passive or index-tracking investors. The anticipated impact of the MSCI upgrade on local exchanges is yet to materialize however it is expected to end the GCC’s reliance on retail investors by creating a more attractive investment environment for institutional investors. The upgrade, which took place in May 2014, may encourage regulators, companies and banks in the UAE and Qatar to revise their foreign ownership restrictions, which will in turn attract more institutional capital to IPO markets.
  3. Improved disclosure mechanisms. GCC local exchanges are seeking to match the disclosure standards of their European and US counterparts. Currently, the enforcement of disclosure mechanisms, transparency and corporate governance in the GCC is developing in line with the more mature bourses. Best practices are set to emerge in the region as the exchanges mature and MSCI inclusion imposes best practices onto the market.

Found this interesting? Related posts about capital markets trends in the UAE can be found here, here and here.

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Qatar Amends Regulations and Issues Rules as MSCI Upgrade Comes Into Effect

Posted in Capital Markets, Qatar, Regulatory

Qatar ExchangeQatar, along with the UAE, has been upgraded from “frontier” to “emerging” market status by MSCI (an upgrade that is now in effect), which is among the criteria used by a large number of institutional investors and private equity funds to identify markets in which they can invest.

It has been reported that the upgrade may draw as much as US$500 million of new investment into Qatari and UAE securities with the entry of foreign institutional investors and passive or index-tracking investors.

In response to its upgrade, Qatar announced that it proposes to amend foreign ownership restriction rules imposed on companies listed on the Qatar Exchange.

Amendments to the foreign ownership restriction rules imposed on companies listed on the Qatar Exchange

On 27 May 2014, an Emiri direction was announced approving the amendment to existing regulation in connection with restrictions on foreign ownership in companies listed on the Qatar Exchange. Pursuant to the direction, the ceiling for non-Qatari ownership in companies listed on the Qatar Exchange was increased from 25% to 49%, subject to each company amending its memorandum and articles of association approving any proposed increase up to 49%. This replaces the requirement to obtain an exemption from the Council of Minister in connection with any increase above the 25% ownership threshold as set out under applicable laws in Qatar. The percentage of non-Qatari ownership will be calculated based on the total share capital and not the free float. Furthermore, it was announced that citizens of the countries comprising the Gulf Cooperation Council will be treated equally to Qatari citizens in connection with ownership of shares in companies listed on the Qatar Exchange. The announcement of this increase comes before the much anticipated MSCI Inc. upgrade for Qatar to an emerging market.

The QFMA issues its own rules on Mergers & Acquisitions

The Qatar Financial Markets Authority (QFMA) has issued five new regulations including its own set of rules in relation to the merger and acquisitions of companies listed on the Qatar Exchange (“M&A Rules”). It appears that the new M&A Rules are intended to complement existing merger and acquisitions regulations set out in Law No. (5) of 2002 Promulgating the Commercial Companies Law.

To find out more about Qatar’s MSCI upgrade and the impact on regional capital markets, click here.

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