The strengthening global recovery appears to have brought renewed confidence to the UAE’s capital markets. As such, a number of interesting themes have begun to emerge:
Resurgence in Dubai’s Real Estate Sector: Following a four year gap, IPOs and other equity offerings have returned in the form of DAMAC, Al Noor Hospitals, Arabtec, NMC Healthcare and Bank of London and the Middle East. This resurgence can be attributed to the optimism surrounding Dubai’s Expo 2020 bid, which seems to have fuelled a revival of Dubai’s real estate sector.
NASDAQ Attracting Niche Issuers: As smaller and more niche types of issuers list on NASDAQ Dubai it bodes well for the maturation of the market.
London over Local: London remains a popular alternative listing venue for UAE issuers, with DAMAC, NMC Healthcare and Al Noor Hospitals all opting for the LSE over local exchanges. NMC and Al Noor Hospitals have gone further and registered as UK plcs, benefitting from the UK’s corporate tax exemption for holding companies.
GCC Cooperation: Abu Dhabi’s local exchange ADX has entered into an important arrangement with the Saudi Tadawul exchange to permit cross-listing of shares, allowing companies listed on the ADX to benefit from a secondary listing on the region’s most liquid exchange. This is a positive step towards a passporting regime similar to that which exists between EU jurisdictions and is a sign of increasing co-operation among GCC regulators.
The Middle East is emerging as one of the biggest growth markets for outsourcing. Organizations seeking cost and efficiency savings combined with greater continuity and risk management are switching to outsourcing as a method of managing their back-office business operations.
MENA outsourcing revenues are predicted to hit US$2.69 billion by 2016 (Frost & Sullivan). Across the region, commitment to outsourcing can be observed with the Kingdom of Saudi Arabia forecasting that more than 50% of its ICT needs will be fulfilled by outsourcing companies by 2016. In the UAE, the dedicated Dubai Outsource Zone (DOZ) has announced a 15% growth rate throughout 2012.
Successfully managing an outsourcing contract requires customers to include the right governance tools and mechanisms in their contracts and then use those tools appropriately. Click here to read more about the types of governance tools.
Contract tools provide the customer with leverage in managing the outsourcing contract. Customers should use these tools knowingly with a view to the potential impact on the supplier relationship.
Download the “Using Contract Tools” whitepaper and learn how to effectively manage outsourcing contracts.
Understanding how to use contract tools can optimize the outcome of the relationship for the customer, who will be empowered to:
- Manage the supplier relationship to ensure issues are resolved quickly and opportunities are maximized.
- Maximize savings as profitability of the transaction is determined by performance.
- Handle issues and escalations to avoid disputes.
- Use customer leverage to ensure contractual commitments are met.
- Manage unexpected contractual change with reasonable pricing impact.
- Monitor service performance and audit status information provided by the supplier.
- Maintain contractual and operational control to ensure supplier compliance.
- Work constructively with third parties to resolve any issues that arise.
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With investment pouring into the education sector, academic institutions have never been in a stronger position to capitalise on costly real estate assets to fuel future expansion. Research suggests the public and private education market in MENA is projected to be worth US$96 billion by 2015, with the GCC region claiming US$61 billion of that predicted value. (Al Masah Capital Report)
The sale and leaseback model is enabling educational institutions to unlock capital.
In the most straightforward form, sale and leaseback transactions involve selling a real estate asset to an investor and simultaneously entering into a long-term lease of normally 15 years or longer. This results in an immediate release of capital to the institution and generates profit for the investor – creating a win-win situation.
It is therefore not surprising that the GCC is witnessing a steady rise in sale and leaseback transactions. Yet this method is not without its legal hurdles:
- A foreign investor contemplating a sale and leaseback in the region must be mindful of the specific laws and regulations restricting who can own and register freehold and long-term leasehold interests.
- GCC and other Islamic investors may need to comply with Shari’ah principles.
- Various third party consents may be required as conditions precedent to any deal, for example regulator or superior landlord consent.
- Educational providers need to meet strict accounting rules if they seek to classify long-term lease agreements as operating leases rather than finance leases.
Read more about sale and leaseback transactions in the GCC education sector here
Investment in the UAE’s healthcare sector is steadily increasing as the government seeks to deliver world-class healthcare to its residents. Latham has compiled the following Infographic to explain the regulatory framework behind the UAE’s first-rate infrastructure projects and advanced healthcare services.
Read more about UAE healthcare regulations here.
Digital Identity Dominates
Having a digital identity for online browsing, transactions and interactions has become necessary to operate in this information age. As more and more lifestyle and business services shift to the digital platform, there has been an explosive growth in personal data capture. The “Big Data” phenomenon has the potential to transform, innovate and optimize entire industries, yet policy makers need to be able to strike the balance between productivity and privacy to protect personal data.
Protecting Personal Data
Whilst it is not widely recognized that countries in the Middle East have specific established laws applicable to data protection, privacy and data protection are regulated by other laws in the region.
In Qatar, Saudi Arabia and the United Arab Emirates, the constitutions, together with certain statutes, recognize individual rights to privacy in specific circumstances. In addition, in Saudi Arabia, protection of personal data is provided through Shari’ah principles.
Latham & Watkins’ explains in an article, published by The Oath, the laws applicable to personal data protection which govern the processing, storage and transfer of data in the UAE, Qatar and Saudi.
Read the full Privacy Matters article here.
Key themes covered include:
- Constitutional protection: Discover how confidentiality is protected by the constitution in each country.
- Sector-specific laws: From labour to telecommunications law, learn how the collection, use, retention and disclosure of personal data is governed by sector-specific law
- Shari’ah principles protection: Learn how Shari’ah principles are relevant to disclosure of personal data in Saudi Arabia
- Separate data protection regimes: Understand how data protection is regulated in Qatar’s and Dubai’s financial centers, where compliance mimics the approach taken in the European Data Protection directive
- Combating cybercrime: Get familiar with the Federal Laws that exist to criminalize unauthorized access, amendment, interception, damage and use of certain types of data.
- Unified data protection regime for the region: Will the region consider following a European Union style approach to data protection?
On 12 July 2013, the US Internal Revenue Service issued a revised timeline for the implementation of the requirements of sections 1471 to 1474 of the Internal Revenue Code, commonly referred to as FATCA.
- The implementation of FATCA withholding on US source income has been delayed by six months and will now commence on 1 July 2014 (rather than 1 January 2014).
- The grandfathering period for FATCA withholding on US source income has also be extended by six months to 30 June 2014.
- A number of other key starting dates for FATCA reporting and compliance obligations have also been extended, though the notice does not affect the timing for implementation of FATCA withholding on gross proceeds or passthru payments, which remains scheduled to take effect on 1 January 2017.
- Financings, derivative transactions and other similar arrangements that are entered into prior to 1 July 2014 will not be subject to FATCA withholding regardless of the status or jurisdiction of the parties, in the same way as previously applied to arrangements entered into prior to 1 January 2014 only.
- However, as before, a “significant modification” of the relevant arrangement on or after 1 July 2014 could cause the grandfathering protection to be lost, and therefore careful consideration of FATCA provisions remains important in such arrangements.
For further detail on this development and a general overview of the impact of FATCA on Middle East transactions, please click here to view a presentation Latham hosted on 25 July 2013.
The global financial crisis and credit crunch prompted the Capital Markets Authority in Saudi Arabia (the “CMA”) to introduce rules to increase investor awareness of public company financial difficulties. In May 2013, the CMA published draft guidelines and instructions setting out certain rules that apply to public companies when the losses of a public company reaches 50% or more of its share capital (the “Guidelines”). The deadline for the business community to provide comments on the draft Guidelines was June 26. While the business community awaits further guidance from the CMA, below follows a summary of the key rules in the draft Guidelines.
The Guidelines set forth separate rules that apply once the accumulated losses of a public company reaches 50%, 75% and 100% of its share capital. “Accumulated losses” is defined as the aggregate of the losses of the company for all of the previous years as reflected in its balance sheet in addition to the net losses accumulated for the current period.
Rules Applicable when Accumulated Losses Reach 50% of the Share Capital
As soon as the accumulated losses of a company reaches 50% (but not exceeding 75%) of its share capital, the company shall:
- announce to the public the amount of the accumulated losses and its percentage in the share capital and the main reasons that caused the losses; and
- within ten days following the end of each month, publish its management accounts.
One day following the public announcement referred to above, Tadawul shall add a sign next to the company’s name on Tadawul’s website indicating that the company’s accumulated losses have reached 50% of its share capital but do not exceed 75% of its share capital.
Rules Applicable when Accumulated Losses Reach 75% of the Share Capital
The same rules highlighted above when the accumulated losses of a company reach 50% of its share capital apply when the accumulated losses reach 75%. In addition, the following rules will apply:
- the settlement of trade orders on the company’s shares shall be prolonged to T+2 (as opposed to the usual instantaneous settlement);
- the board of the company shall put together a plan setting out, among other things, the steps the company intend to take to restore the financial health of the company (Appendix 1 of the Guidelines include a list of the items that the plan should cover);
- the board of the company shall form a committee of their members (one of which shall be a board member) to undertake the implementation of the plan highlighted above; and
- at the end of each financial quarter, the company shall announce to the public the status of the implementation of the plan highlighted above.
The listing of the company’s shares shall be cancelled thirty days following the occurrence of any of the following:
- the company does not submit to the CMA the plan highlighted above; or
- the company failing to reduce its accumulated losses below 75% of its share capital within two financial years after the financial year in which the accumulated losses of the company reached 75% of its share capital or making operating profits in its last financial year.
Photo: Getty Images
Abu Dhabi’s Department of Transport has recently announced that it is pressing ahead with the procurement of the first phase of its metro and light rail project, representing not only a significant step in the development of the Emirate’s critical infrastructure, but also marking a renewed confidence and welcome return of the infrastructure development market in Abu Dhabi after several years of relatively subdued activity.
The first phase will comprise a metro line, two light rail lines and a bus rapid transit system. The DOT is expected to procure the project under a number of separate contracts with expectations that some, if not all, of the contracts will be FIDIC based and procured on a design, build, operate and maintain basis.
The metro line will be procured under three separate contracts: above ground structures; underground construction works; and the rail system, rolling stock and operation and maintenance contract. When the tender documents are released, it will be interesting to learn whether the DOT is prepared to give bidders flexibility to submit alternative bids on the basis of different lengths of track underground and above ground from those required by the tender documents if this provides better value for money.
There will be two light rail transit lines procured at the same time, which will broadly run across the top of the island. The construction of these lines will require substantial work to the existing road network and will involve interfaces with existing infrastructure. Whether the DOT will procure this work separately or include this in the scope of each of the successful bidders obligations will be interesting and is significant. In addition, it remains to be seen whether the DOT is open to the possibility that one bidder could be appointed to provide both lines.
The bus rapid transit system will be a closed system of approx. 4km running in a loop around the top of the island.
DOT intends to procure the project by way of direct procurement and will directly fund the project itself.
To read more about Abu Dhabi’s landmark metro and light rail project and read an analysis of key considerations related to the project, click here.
Photo: Dreamstime Stock Photography
Upgrade by MSCI is a vote of confidence in economic models and a positive indicator for regional capital markets
MSCI, Inc., the US-based provider of investment decision support tools and risk and performance analytics, has announced it is upgrading both Qatar and the United Arab Emirates from “frontier market” to “emerging market” status. Qatar and the UAE are the only countries upgraded as part of MSCI’s 2013 Annual Market Classification Review. Regulators and market participants in both countries had been hoping for the upgrade, but it had not been widely expected to occur during the current review season. This positive news has already led to significant share price rises on the Qatar Exchange, the ADX in Abu Dhabi and the Dubai Financial Market. The timing of the upgrade is potentially opportune, coming during a period of general speculation regarding a number of possible new IPOs in both jurisdictions.
“Emerging market” status 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. It should be noted that actual reclassification will not take place until May 2014.
The upgrade by MSCI recognises advances made by both Qatar and the UAE towards liberalisation, enhanced liquidity, technical developments in their settlement and trading regimes and relaxation of foreign ownership restrictions, although these have by no means been abolished. The promotion to “emerging market” status is also being seen as a more general boost for Qatar and the UAE, and an endorsement of their economic stability and business model, as they join the ranks of other “emerging markets”, such as the BRICS – Brazil, Russia, India, China and South Africa – as well as other emerging economies such as Mexico, Turkey and South Korea.
The other Gulf Cooperation Council (GCC) jurisdictions – Bahrain, Kuwait, Oman and Saudi Arabia (the GCC’s largest economy) – have not been upgraded, and this may lead to greater pressure to speed up reforms which could ensure promotion to “emerging market” status. The 2013 review by MSCI has also seen Morocco downgraded from “emerging market” to “frontier market” status, due to failure to meet minimum liquidity levels. Both Qatar and the UAE will need to continue to encourage liquidity, which has at times been a challenge in both countries’ markets.
Photo: Dreamstime Stock Photography
The Custodian of the Two Holy Mosques, King Abdullah, announced on Sunday June 23, 2013 that the official working days in Saudi Arabia will change to Sunday to Thursday and the weekend to Friday to Saturday, with effect from June 29, 2013 (the “Royal Decree”). The change aligns Saudi Arabia with the other members of the Gulf Co-operation Council, Oman having changed its weekend earlier this year, and provides a four working day overlap with other business centres globally. The prospect of the weekend day change was first raised by the Shura Council in April of this year.
The Royal Decree is a welcome change for many, but the switch to the timing of the weekends does raise questions as to the operation of “Business Day” definitions in existing financing documentation for Saudi Arabian borrowers, issuers, investors and financial institutions.
The announcement by the Shura Council back in April focused attention on the definition of “Business Day” and many financing agreements signed after this date moved to the LMA (Loan Market Association) standard form style formulation of “Business Day” referring to “days when banks are open for business in Riyadh for interbank transactions”, following the same convention as for other financial centres like New York or London.
“Business Day” Definition to Impact Documentation
However documentation entered into prior to the Shura Council announcement often followed the convention where “Business Day” was defined as “a day, other than a Thursday or Friday, on which banks are generally open for business in, Riyadh, the Kingdom of Saudi Arabia”.
- Financing documentation that includes this “Business Day” formulation will see the Riyadh business days narrow to four (4) days per week.
- Payments due on a Thursday may now fall due for payment on a Wednesday (where a fall back to the next prior business day convention applies) or on a Sunday (where the fall forward to the next succeeding business day convention applies).
Key Considerations for the Royal Decree
- The consequences of the Royal Decree will vary from transaction to transaction, however it is likely that financing agreements signed pre June 23, 2013 may now contain an obsolete definition of Business Day.
- Parties to financing agreements may wish to examine their documentation to better understand the impact of the Royal Decree.
- The Royal Decree did not provide for any automated amendment of “Business Day” conventions and parties to financing agreements will need to consider whether an amendment to their existing documentation should be executed to regularise references to “Business Days” for relevant periods – including commission and profit rate, cure and notice periods and repayment dates.
Photo: Dreamstime Stock Photography