Middle East Capital Markets Watch: ECM

Why do public companies re-domicile?

One of the primary advantages of re-domiciliation, as opposed to incorporating a new entity, is the ability to retain the company’s legal identity, including its operational history, goodwill, contractual obligations and banking relationships, while simultaneously benefiting from the corporate legal framework and other benefits afforded by a new jurisdiction.

The UAE offers compelling incentives for public companies considering migration. Its business-friendly environment is underpinned by a tax-efficient framework, including low corporate tax rates, cost-reduction incentives and an extensive network of double taxation treaties.

Subject to meeting certain eligibility criteria, the re-domiciliation may enable a public company to switch from its current stock exchange listing to alternative listing venues, such as the Abu Dhabi Securities Exchange, the Dubai Financial Market or Nasdaq Dubai. Alternatively, a company may maintain its existing listing, while seeking an additional listing on one of these venues, thereby gaining access to additional capital, liquidity or a regulatory framework scalable to its business. If these considerations are not relevant, a company may maintain its current listing without seeking a new or additional one.

In some cases, a public company may be compelled to seek a new listing if it can no longer meet the listing eligibility criteria in its current jurisdiction or if it is required to delist.

Beyond financial advantages, the UAE (including the ADGM and the DIFC) has established itself as a regional hub with strategic access to emerging markets in Africa, the Middle East, the Commonwealth of Independent States and Southeast Asia. This, combined with world-class infrastructure and a stable economic and political climate, makes the UAE an attractive destination for public companies pursuing re-domiciliation.

The re-domiciliation process

Re-domiciliation is a process involving various procedural and regulatory steps, which differ depending on the requirements of the “outgoing” legal jurisdiction and the chosen financial free zone.

The first step is to determine whether the laws of the company’s current jurisdiction permit re-domiciliation, and whether any approvals in the current jurisdiction are required. An additional consideration is whether the applicable regulatory and stock exchange rules allow for such a move. Companies intending to maintain their listing post-migration must assess whether the listing framework is compatible with the regulatory environment of the relevant UAE financial free zone jurisdiction and, if not, how to address any discrepancies.

Re-domiciling from one country to another involves careful management of the public and investor relations to maintain an open dialogue with shareholders, who will likely eventually need to approve the re-domiciliation. The choice of a new jurisdiction often centers on preserving as many shareholder rights as possible and ensuring shareholders are familiar with the legal regime of the new jurisdiction. Where advantageous, a share buyback facility may be used to manage shareholder relations in the long-term interests of the company.

Where shares are held through clearing systems, brokers or custody agents, the ability to continue to hold positions in the company is subject to their requirements and willingness to continue to hold the position in the re-domiciled company.

It is also essential to conduct thorough due diligence to identify potential issues related to financing arrangements, material contracts and intellectual property. For instance, re-domiciliation may trigger third-party consent or notification requirements that must be addressed appropriately.

Once these preliminary steps are completed, the re-domiciliation process typically involves two main stages, which include the preparation of documentation to transfer the company out of its home jurisdiction and registration in the UAE financial free zone, which includes submitting new articles of association or “continuance”, paying applicable fees and deregistering the company in the original jurisdiction (if not done automatically).

Conclusion

Re-domiciliation is a nuanced process that requires careful navigation of both home and host jurisdiction regulations. For public companies, the complexity is heightened by the need to comply with the applicable regulatory and listing requirements. In our experience, straightforward migrations can take eight to twelve weeks, with longer timelines possible where detailed due diligence or additional regulatory approvals are required.

The Norton Rose Fulbright team is well-positioned to guide you through this process. With deep local expertise and a global network, we can support your business in successfully establishing or re-domiciling to the UAE.