Acquisition Financing 2023 - UAE | Global Practice Guide (2023)

Acquisition financing deals in the UAE have historically relied heavily on debt provided by UAE banks. This is because such banks are more familiar with the regulatory and legal environment in the UAE and, as entities licensed by the Central Bank of the UAE, are able to hold shares in securities of all types of entities incorporated in the UAE, which is not the case with foreign lenders, as explained below. Banks based in the UAE are thus able to leverage their relationships to negotiate terms that are more advantageous than those in neighboring regions. Nonetheless, international banks are able to facilitate cross-border transactions across their global networks and are starting to play a significant role in acquisition financing deals in the UAE.

Ultimately, the type of lender will vary depending on factors such as the nature of the acquisition, the size of the facility, the buyer's credit rating and the industry sector; however, in cross-border transactions it is common to see a mix of local and international banks participating in acquisition financing . For example, ADQ acquired a 45% stake in Louis Dreyfus Co (LDC) in 2021, financed by various banks including Emirates NBD, First Abu Dhabi Bank, Intesa Sanpaolo and Natixis.

As an alternative to traditional bank financing, direct lending from non-institutional lenders has taken a more active role in acquisition financing in the UAE in the wake of the COVID-19 pandemic, especially in mid-market and smaller deals where borrowers may struggle to access On the one hand, financing from institutional lenders. Direct lenders in the UAE offer attractive lending solutions with greater flexibility, faster execution times and looser lending standards. The most common direct lenders are hedge funds and asset managers: EnTrust Global’s Blue Ocean Fund, for example, lent to United Overseas Group for its 2021 acquisition of United Arab Chemical Carriers. Additionally, direct lending is often arranged through local and global platforms (e.g., Dubai-based Beehive) through direct lending.

Another alternative to bank loans in the UAE acquisition financing market is debt funds. Debt funds often provide mezzanine debt and other forms of alternative financing arrangements for such transactions. These may be of particular interest to borrowers who may not meet traditional bank credit requirements. Such financings account for a relatively small portion of the market and are mainly associated with acquisitions by private equity firms. A growing number of private credit funds are being raised by promoters based in the Middle East, and while these funds have historically been domiciled outside the Middle East (e.g. the Cayman Islands), the promoters use local structures, especially in the UAE Financial Free Zones (DIFC and ADGM) were recently observed. DIFC issued specific credit fund rules in 2022, and ADGM's credit fund rules are expected to be issued in the near future. Most of these funds focus on lending to SMEs, usually venture or mezzanine debt. Observe traditional and shariah-compliant private credit funds.

In the UAE's acquisition finance market, buyers are typically corporate entities or private equity investors, similar to other markets. Current market trends indicate that corporate buyers who can benefit from immediate synergies and economies of scale are more likely to pursue acquisitions than private equity investors.

In the UAE, leveraged buyouts have grown in popularity in recent years as investors look to make strategic acquisitions in a range of sectors, including healthcare, technology and infrastructure. Dubai, in particular, has been at the forefront of this trend as the government seeks to capitalize on the city's status as a major transportation and technology hub. Likewise, LBOs in the UAE are focused on healthcare as the country's rapidly growing population creates increasing demand for healthcare services. A recent example of a major leveraged buyout deal is the acquisition of Allianz Marine & Logistics Services Holding Limited by Shuaa Capital psc, which is being financed by the National Bank of Fujairah and Arab Petroleum Investments Corporation and is set for 2022.

After a brief but restrictive lockdown at the start of the COVID-19 pandemic, the UAE eased restrictions earlier than most other economies. Therefore, the COVID-19 pandemic has not affected the UAE more severely than other markets.

The war in Ukraine and forecasts of an imminent recession have led to a more restrained risk appetite among potential buyers, which in turn has led to fewer opportunities for acquisition financing deals. It should also be noted that the war in Ukraine resulted in a large number of Russian nationals emigrating to the UAE, which in turn led to an increasing number of Russian nationals establishing new entities in the UAE. This has yet to lead to a significant increase in acquisition financing deals, which may (or may not) become more pronounced in the coming months or years. It should be noted that Russia-related transactions are subject to a higher level of scrutiny to avoid potential direct violations of sanctions legislation or secondary sanctions risks that may apply in the region or as part of individual entities' internal compliance procedures. Therefore, if the deal is related to Russia, both parties will need to guard against the risk of changes in the sanctions regime after signing, which may prevent them from completing the transaction or paying the seller or any delayed transfer of shares.

Depending on the nature of the transaction being considered, the LMA "Leveraged/High Yield" and LMA "Leveraged – Advanced/Mezzanine" precedent documents will generally serve as the basis for the parties to begin negotiations, and these documents will be modified to reflect the nuances of the specific transaction.

Additionally, for Shariah compliant transactions, the LMA Basic Form can also serve as a starting point for negotiations that are accepted and expected by more established and sophisticated banks and borrowers. This can be even more challenging for smaller lenders and borrowers who may not be familiar with such forms.

Similar to the mainstream market, lenders will often request legal enforceability opinions on the enforceability of financing documents and share transfers under the appropriate governing law, as well as legal capacity opinions related to the capacity of relevant borrowers (and other obligors) and Sellers of shares carry out their ongoing transactions.

A legal opinion from a law firm will usually provide any opinion on whether the document complies with Shariah principles. If the corresponding transaction is subject to Shariah principles, a dedicated Shariah advisor will usually issue a Fatwa on the transaction, confirming that the transaction is Shariah compliant, and such advisors will usually audit the transaction on a regular basis (usually annually) to ensure that it continues to comply Principles of Islamic law.

External financing of acquisitions is less common in the UAE than in other jurisdictions, and the vast majority of acquisitions continue to be financed with the buyer's own funds. Where transactions require financing, the sources of such financing remain largely regional, with UAE banks, promoters and sovereign wealth funds driving the market, especially for acquisitions linked to areas of public interest.

The majority of acquisition financing transactions in the UAE (domestic and cross-border) are usually structured as senior term loans, with corporate or bank guarantees provided by the borrower to the lender. However, given the ability of UAE banks to negotiate quite favorable terms such as1.1 Key lender players, in such transactions it is not uncommon for the ultimate beneficial owner of the borrower to provide a personal guarantee. In addition to the main financing documents, the borrower may execute a promissory note, a subordination agreement for remaining debt, a secured transfer of certain assets such as bank accounts or insurance proceeds, and a purchase agreement for the secured transfer of the right to sell shares in relation to the target company. Call option agreements executed between borrowers and lenders in relation to shares in a target are also common (provided the target company is incorporated with DIFC or ADGM) to ensure the prompt transfer of such shares to the lender in the event of default .

While most acquisitions are financed through conventional financing, there are also a number of Islamic financing structures available to facilitate financing where one party must comply with Sharia law, such as murabaha, musharaka, mudaraba, sukuk and ijara structures. It is worth noting, however, that deeds in Shariah-compliant structures are often more onerous than those in conventional facilities, as they include an obligation for the borrower to ensure that they take Shariah-compliant actions. In general, the UAE will not benefit from the streamlined contracting approach that will be seen in more mature markets.

While mezzanine loans, PIK loans, high-yield bonds, private placements and asset-based financing are all available to borrowers in the UAE and have the same applications as other markets, they are not as common or prevalent as in more established markets.

Inter-creditor agreements are common and generally follow the LMA format and include the following elements:

• Loan rankings given to borrowers among relevant lenders;
• Shared transaction security between lenders;
• The decision-making process for the consents and waivers to be given by the Lender under the financing documents;
• Executing and enforcing procedures;
• subordination of intra-group loans between entities related to related borrowers; and
• Provisions for offsetting loans granted by such borrowers to the target company if the lender enforces a guarantee on the target shares.

If the transaction involves a senior lender and a mezzanine lender, the creditor will provide that the financing provided by the senior lender will have first priority and be entitled to proceeds of any security before the mezzanine lender. Any intra-group lending to related borrowers will be subordinated to senior and mezzanine lenders, similar to more mature markets.

Acquisition financing typically involves granting security over shares in the target entity and (to the extent permitted by the financial assistance rules detailed in5.5 Financial Aid) assets of the target entity and other obligors related to it.

share

The process of securing a stake in a target company in the UAE differs depending on whether the company is incorporated with the Ministry of Economic Development (i.e. "onshore") or in a free zone such as the Dubai International Financial Center (DIFC) or Abu Dhabi Dhabi Global Markets (ADGM). In each case, taking a security over the shares of the underlying company will involve the owner of the underlying shares (“plunderer”) and the relevant security agent or lender entering into a share pledge agreement. For more details on this process, see5.2 Formal requirements.

Bank accounts, inventories, intellectual property and accounts receivable

Providing security for bank accounts, inventories, intellectual property and receivables will involve the relevant parties signing a security document; however, the specific process of obtaining and registering a security will vary depending on whether the security is onshore or in a duty-free zone. For more details on taking security measures, see5.2 Formal requirementsand5.3 Registration process.

real estate

Securing real estate will involve the parties entering into a mortgage agreement. As with the examples above, the specific steps required to grant and register a mortgage will vary depending on whether the asset is located in a domestic or free zone. For more details, see5.2 Formal requirementsand5.3 Registration process.

Movable Property (Motor Vehicles) - Onshore

In the UAE, security over movable property such as motor vehicles can be granted to banks licensed by the Central Bank of the UAE and involves a mortgage agreement between the registered owner of the vehicle and the relevant bank. The mortgage must also be registered with the UAE Roads and Transport Authority (RTA), who will issue a mulkiya (i.e. registration card) indicating that the car is mortgaged to the relevant bank.

Shares - Onshore

Federal Decree No. 32 of 2021 (CCL) states that an entity may be registered as a Limited Liability Company (LLC), Public Joint Stock Company (PJSC) or Private Joint Stock Company (PrJSC). The procedure for pledging LLC shares involves the parties signing the share pledge in Arabic or, if in English, translated into Arabic by a translator certified by the UAE Ministry of Justice. The share pledge must be signed in the presence of a notary public and subsequently consummated by registration with the UAE Department of Economic Development (DED). After the pledge registration, without the consent of the pledgee, the share transfer registration shall not be handled. It should also be noted that only banks licensed by the Central Bank of the UAE can hold security over shares in onshore companies, so if the lender is a foreign entity, it may be necessary to appoint a properly licensed security agent.

In addition to entering into a share pledge agreement, the procedure for pledging shares in PJSC or PrJSC is accomplished by physically delivering the shares to the pledgee and registering the pledge in the company register (although physical delivery is not required if the shares are not in certificated form). A PJSC is usually required to be listed on one of the stock exchanges in the UAE and the pledge should be recorded in the share register maintained by the relevant exchange. PJSC will appoint a share registrar such as Dubai Financial Market or Abu Dhabi Securities Exchange to record the pledge. Following such registration, the pledgee is usually entitled to receive dividends and rights attached to the shares, but in most cases these are returned to the borrower unless the borrower defaults (with certain limitations).

Stocks - DIFC

The process of obtaining a guarantee in DIFC is generally governed by the DIFC Law No. 8 of 2005 (the "DIFC Guarantees Act") and the DIFC Guarantees Regulations 2019. DIFC does not offer different rules depending on the asset to be secured (excluding land and real estate); therefore, all security measures taken at DIFC must be 'attached' to be effective.

For "attachment" to occur:

• A value must be given;
• The debtor must have rights to the collateral or be entitled to assign its rights to the collateral to the secured party; and
• One of the following is required:

1. the debtor must be bound by a security agreement that provides a description of the collateral; or
2. The collateral must be a transferable document of title, negotiable instrument, money, deposit account, or financial property, and the guarantor must have control under the debtor's security agreement.

The underlying security is consummated once (i) it is 'attached' and (ii) a 'financing statement' is lodged with the DIFC Securities Registry. The "financing statement" should be filed within 20 days of the date of the security agreement and expires five years from the date of filing (notwithstanding the duration of the security agreement itself), pending the continuing statement. Based on the foregoing, the parties concerned enter into a share pledge agreement and register this agreement with DIFC by submitting a financing statement (in the form prescribed by DIFC), thereby granting a security in the shares of the company at DIFC) with the DIFC Security Registrar. The equity pledge agreement shall be in written form. However, there is no prescribed format for the equity pledge agreement. For more details on securities registration with DIFC, see5.3 Registration process.

Shares – ADGM

Similar to the DIFC process, securing shares in an ADGM incorporated company requires the parties to enter into a share pledge agreement and register the agreement through ADGM's online registration portal. There is no specific prescribed format for the guarantee agreement in the ADGM. For more details on registration, see5.3 Registration process.

Bank accounts, inventories, intellectual property and accounts receivable–on land

Security of receivables, inventories, intellectual property and bank accounts located in the territory is governed by Federal Law No. 4 of 2020 (“Pledge Law”) and Federal Cabinet Resolution No. 29 of 2023 (“Implementing Regulations”). The process of securing bank accounts, inventories, intellectual property and receivables involves the parties entering into a security agreement, which must then be registered on a register created by the Pledge Act (the "onshore register"). The "Implementation Regulations" also require that in the case of a bank account being guaranteed, an account control agreement must be signed between the relevant account bank and the guarantee agent (unless the lending entity is also the relevant account bank). Unlike shares, the security pledgee does not need to be a bank licensed by the Central Bank of the UAE, and the security agreement does not need to be signed in front of a notary at the time of execution.

Bank Accounts, Inventory, Intellectual Property and Accounts Receivable – DIFC

As mentioned above, the process of obtaining a security at DIFC does not differ depending on the asset to be secured (excluding land and real estate). As such, the process of securing bank accounts, inventories, intellectual property and receivables typically involves entering into a security agreement and filing a financing statement with the DIFC Securities Registry. Also, it should be noted that financing statements do not apply to transfer security for certain receivables (as defined in the DIFC Guarantee Act) and funds held in investment accounts (as defined in the DIFC Personal Property Act (DIFC Act) No. 9 of 2005)).

Bank Accounts and Accounts Receivable – ADGM

Charges over assets of ADGM companies are governed by the ADGM Companies Regulations 2020 (“ADGM Companies Regulations”). This process involves all parties entering into a security agreement which must be registered as outlined5.3 Registration process.

Real Estate - Onshore

Real estate assets located onshore can be mortgaged to banks licensed by the Central Bank of the UAE. To round out a valid mortgage in the UAE, the mortgage agreement stipulated by the relevant emirate's land authority (in Dubai, this is the Dubai Land Department) must: (i) be in Arabic in writing signed by a notary or in the presence of the relevant land authority; Available from the Mortgage Registry of the Land Department or the local municipality of the relevant emirate.

Real estate - DIFC

Property within the DIFC is governed by the DIFC Act No. 10 of 2018 (“DIFC Immovable Property Act”) which provides that real estate transactions must be registered in a central register administered by DIFC and shall include:

• a description identifying the property;
• A statement identifying the interest to be mortgaged; and
• A description of the secured debt or liability.

DIFC mortgages must be in writing and registered with the DIFC Immovable Property Registry.

Real Estate – ADGM

The ADGM Immovable Property Regulations 2015 (“ADGM Property Regulations”) govern the process of taking security on property within ADGM and provide that the Registrar shall maintain a register of immovable property recording all documents relating to the creation or transfer of property rights within ADGM. In order to establish a real estate mortgage in ADGM, the parties must enter into a written mortgage contract and register the mortgage with the ADGM registry.

Movable property (motor vehicles)–on land

Due to the nature of motor vehicles, they are secured by parties entering into a written commercial mortgage and such mortgage is registered with the RTA. For more details on registration, see5.3 Registration process.

share–on land

As mentioned above, share pledges for shares in a limited liability company must be registered with the DED. The registration process consists of providing the DED with a notarized copy of the share pledge and paying the fee prescribed by the DED. After the fee is paid, DED will issue a certificate confirming that the certificate has been registered.

Stocks - DIFC

As mentioned above, share pledges over shares in DIFC companies must also be registered with the DIFC Securities Registry. Registration involves filing a completed financing statement with the DIFC Securities Registrar and paying a fee of US$5,000. After registration, the DIFC Secure Registrar will provide a confirmation of registration. It should also be noted that the initial financing statement will lapse after five years and the parties will be responsible for ensuring that a continuation statement is filed, for a fee of $1,000, to ensure that the registration of the securities continues.

Shares – ADGM

As stated above, a share pledge over the shares of an ADGM company should be registered using ADGM's online portal, which includes completing a questionnaire prescribed by ADGM's registrar of securities, providing a certified copy of the share guarantee agreement and paying a fee which is approximately $300 as prescribed by ADGM . Upon registration, ADGM will provide a certificate confirming the registration details. Registration in ADGM is valid until deregistered using the same portal used to register.

Bank accounts, inventories, intellectual property and accounts receivable–on land

Registration of securities with the onshore registry involves the use of the online portal to complete a prescribed online questionnaire which will include details identifying the relevant pledgor and pledgee, as well as the assets secured. Registration also requires payment of a fee prescribed by the implementing regulations, which ranges from $13 to $55.

Bank accounts, inventories, intellectual property and accounts receivable–Dubai International Financial Center

The process of registering a security in DIFC does not differ for bank accounts and receivables, and the process described above also applies to security documents relating to bank accounts and receivables.

Bank accounts, inventories, intellectual property and accounts receivable–ADGM

The process of registering securities in ADGM is no different for bank accounts and accounts receivable. Therefore, the above process also applies to security documents related to bank accounts and receivables.

Real Estate - Onshore

Registering a mortgage onshore involves filing an application and paying a fee with the land department of the relevant emirate. In Dubai, the Dubai Land Department currently charges a fee of 0.25% of the mortgage value to register a mortgage in accordance with Executive Council Resolution No. 3 of 2013 approving the Land Department fees.

Real estate - DIFC

Registering a mortgage with DIFC involves making an application and paying a fee to the DIFC Immovable Property Registry. It should also be noted that DIFC registration fees vary; for example, a collateral fee of US$100 for a conventional loan and US$273 for an Islamic mortgage. If the property is not yet registered with the DIFC Immovable Property Registry, there is an additional fee (currently 5% of the total property value).

Real Estate – ADGM

Registering a mortgage with ADGM involves filing an application with the ADGM Registry and paying the applicable fee. Regarding fees, mortgage registration applications are charged at 2% of the principal amount of the mortgage security value, capped at $300,000.

Movable property (motor vehicles)–on land

Registration for a vehicle mortgage with the RTA requires an online application through the RTA website and payment of the applicable fee, which can range from $100 to $350. Once the registration is complete, the RTA will issue a mulkiya indicating that the vehicle in question has been mortgaged.

on land

CCL 2021 states that neither a business company nor any of its subsidiaries shall:

• provide loans;
• give a gift;
• provide collateral; or
• Guarantees are provided in each case to a third party enabling that third party to purchase any securities issued by the company (section 224).

Prior to the publication of the CCL 2021, the UAE Ministry of Economy issued guidance through Ministerial Resolution No. 272 ​​of 2016, confirming that the financial assistance ban would not apply to limited liability companies under the relevant business company law in force at the time. It is unclear whether this provision is intended to apply to limited liability companies under CCL 2021.

Dubai International Financial Center

With respect to DIFC, public companies and their subsidiaries are prohibited from providing financial assistance by giving guarantees or giving guarantees in connection with the acquisition of shares in themselves or holding private companies unless:

• Such assistance will not materially prejudice the interests of the company and its shareholders or the company's ability to meet its debts as they fall due, and must be approved by shareholders (90% of the value of the shares);
• The finance or financial assistance is part of the ordinary course of business of the company and is on ordinary commercial terms; or
• It is designated as exempt in the DIFC Companies Regulations (2018).

ADGM

With respect to ADGM, Chapter 2 of Part 17 of the ADGM Companies Regulations generally prohibits a public company or a subsidiary of a public company (whether private or public) from providing financial assistance to acquire shares in that public company by providing guarantees, guarantees or indemnities. The ADGM Companies Ordinance also prohibits public companies from providing financial assistance for the acquisition of shares in their privately held companies. This distinction between public and private companies is largely in line with the UK Companies Act 2006.

There are no express restrictions on UAE entities providing related corporate guarantees or benefiting from guarantees from foreign incorporated entities. However, the following potential pitfalls should be notedfinancial support.

• Affiliate Guarantee– In particular, no PJSC or PrJSC may sponsor a member of its Board of Directors or any relative of that person. In addition, CCL requires the approval of the Board of Directors of any transaction with related parties, including the provision or benefit of guarantees, by the company's general assembly if the value of such transactions exceeds 5% of the company's capital.
• target aid– as described in5.5 Financial Aid, CCL prohibits a company and its subsidiaries from providing financial assistance to any shareholder to enable the shareholder to acquire shares, bonds or Islamic bonds (sukuk) in the company. Such financial assistance includes the provision of guarantees. Furthermore, while the UAE does not have a specific legal system to regulate takeovers, there are some applicable provisions in the Federal Law No. 2 of 1987 (Civil Code), the Central Bank Circular, the Securities and Commodities Authority Regulations, and the listing rules of the three major companies in the UAE. . as mentioned above5.5 Financial Aid, DIFC and ADGM have separate legislation in each case dealing with financial assistance in takeovers. These rules should be assessed individually against the de facto pattern of the acquisition.
• financial stability– Also worth noting are the rules and regulations of each emirate with regard to takeovers. For example, any entity controlled by or supported by the Government of Dubai may be required to obtain the approval (or exemption) from the Supreme Finance Council for guarantees to third parties under Law No. 8 of 2022 regulating the public debt of the Government of Dubai before granting them.
• capacity– As in any jurisdiction, it is important to review the constitutional documents of the company providing the guarantee to ensure that it is adequately authorized to act. As a precondition to closing, the lender will insist on legal advice as to the guarantor's ability to carry out the arrangements contemplated therein. In general, director/manager duties under the Corporations Act require the director/manager to "advocate" the rights of the company, similar to English law requiring directors to act in the best interests of the company. As a general rule, as long as the provision of guarantees is considered to be in the best interests of the group as a whole, there should be no problem from the point of view of directors' duties.

The UAE is primarily a civil law jurisdiction without a specific set of predetermined rules of equitable subordination. However, legislation provides that certain debts of borrowers will be prioritized in the event of bankruptcy.

on land

Federal Law No. 9 of 2016 (“Bankruptcy Code”) provides that the following types of debts shall be considered senior debts and shall be repaid before unsecured debts:

• any court costs or expenses (including trustee and expert fees and any fees paid to serve the common interest of the Lenders);
• Unpaid end-of-service gratuities, wages and salaries (excluding any allowances, bonuses or other temporary payments or any other benefits, whether in cash or in kind) of the Borrower’s employees, staff and employees payable periodically, but in aggregate not exceeding Three months' wages or salary;
• Determination of the maintenance debt of the Borrower in accordance with the judgment issued by the competent court;
• sums due to Government authorities;
• the agreed costs of the creditor and any expert appointed to commence proceedings, including legal counsel; and
• Any fees, costs or expenses incurred after the date of the decision to commence the proceeding to provide goods and services to the Borrower or to continue performance of any other contract for the benefit of the Borrower's business or assets, or any expenses incurred at the commencement of the proceedings in accordance with the provisions of the Bankruptcy Law Costs or expenses incurred to continue the Borrower's business after the date of the loan.

Dubai International Financial Center

In DIFC, the Priority Creditors Regulations provide that: (i) any sums owed by the Borrower as contributions to a pension scheme on behalf of employees of the Borrower; (ii) any sums owed to employees of the Borrower shall be deemed As "senior debt," senior to unsecured debt or debt secured by a security interest in all or substantially all of the business or assets of the borrower.

ADGM

The ADGM Bankruptcy Regulations provide that amounts owed by the Borrower: (i) to persons who are or were employees of the Borrower; (ii) for all or any part of the three-month period preceding the Borrower’s winding up or administration If paid by way of salary or occupational pension scheme contributions, it will be considered as senior debt and the payment will be higher than that of unsecured debt.

on land

The Bankruptcy Code provides that the following transactions may not be enforceable against creditors of the borrower if they occur within two years of the commencement of formal proceedings:

• Donations, gifts or gratuitous transactions, excluding customary small gifts from the Borrower;
• any transaction in which the obligations of the borrower substantially exceed those of the counterparty, whether liabilities in cash or in kind;
• pay any debt by the due date, regardless of the method of payment;
• Payment of debts as they fall due in a manner other than that agreed between the borrower and the creditor or in a manner different from that normally used to pay such debts; and
• Create any new security over the borrower's assets to secure pre-existing obligations.

Dubai International Financial Center

The DIFC Insolvency Code states that if a borrower completes an offer or transaction at a low price:

• In the case of an "associated person", six months before the borrower goes into liquidation or administration, and
• For unaffiliated persons, two years before the borrower goes into liquidation or administration,

The court may order the person to reverse the transaction and leave the borrower in the position it would have been in if the transaction had not been completed.

ADGM

The ADGM Insolvency Regulations provide essentially the same status as DIFC, which is largely in line with the UK Companies Act 2006 status.

There are several industries that are regulated in the UAE, and companies doing business within these industries are regulated by industry-specific bodies and must comply with specific laws and regulations. For example:

• Banks are regulated by the Central Bank and governed by Federal Law No. 14 of 2018 on Central Banks and Organizations of Financial Institutions and Activities;
• Pharmaceutical companies are regulated by the health authorities of each emirate (for example, in Dubai this is the Dubai Health Authority) and are governed by Federal Law No. 8 of 2019 on medical products, pharmaceutical specialties and pharmacies; and
• Under Federal Decree No. 25 of 2020, insurance companies are regulated by the Central Bank following the merger of the Insurance Regulatory Authority into the Central Bank. Therefore, all rules, decisions, circulars and regulations issued by the former Insurance Regulatory Authority under Law No. 6 of 2007 continue to apply to all licensed institutions and activities until they are replaced by the Central Bank.

In such cases, transactions involving a change in ownership of the target entity permitted by the relevant authority require pre-approval from that authority (i.e. the Central Bank or the relevant emirate's health authority). Financiers usually require such approval as a prerequisite for their payments).

In addition, it is also worth mentioning that the transfer of shares in companies in various commercial fields requires a special "no objection certificate" issued by a government agency, certifying that the parties to the transaction abide by special industry rules. For example, in the case of the transfer of shares in real estate owners, a special "Certificate of No Objection" from a government agency is required.

It is also worth noting that if an M&A transaction results in a notifiable (greater than 40%) economic concentration in the relevant sector in the UAE, such transactions should be approved by the Competition Regulation Committee of the UAE Ministry of Economy.

M&A transactions involving public companies require specific disclosures, filings and notifications. Listed companies have an ongoing disclosure obligation, and in the event of a possible merger, the listed company and the acquirer involved will often request consent to defer the obligation to disclose information about negotiations until they have signed a binding contract. Such requests must be jointly submitted by the listed company involved in the merger or by the listed company and the acquirer in an acquisition proposal.

merger

The merger transaction will require the following filings and approvals:

• A formal application to the Securities and Commodities Administration (SCA), which will include details of the merger, and the approval process involves a review of the terms of the transaction and the financial status of the companies involved;
• Preliminary approvals from relevant industry-specific regulators;
• Preliminary approval from the DED; and
• Disclose to the relevant securities exchange market when signing the merger agreement.

buy

Essentially, the acquisition of shares listed on the relevant stock exchange must generally be conducted through a market trading system, using a registered broker, unless the transaction meets certain exemptions or is an over-the-counter (OTC) transaction.

Meanwhile, the acquisition of 30% or more of a public company requires several steps, including obtaining preliminary approval from the SCA, obtaining preliminary approval from relevant industry-specific regulators, and disclosing the execution of the purchase order to the relevant securities exchange market. OTC transactions also require initial approval from the SCA and relevant industry-specific regulators.

A mandatory tender offer is triggered when the acquirer obtains 30% plus 1% or more of the equity of a listed company through acquisition. In this case, the acquirer needs to inform SCA of its intention to proceed with a mandatory tender offer. If the acquirer chooses not to continue holding the MTO, its ownership will drop to 30% or less within three months of notifying the SCA. The minimum requirement for a successful MTO is the acquisition of 50% of the public company plus 1% of the capital. Failure to meet this requirement will result in the MTO being canceled and the ownership stake reduced to 30% or less.

Nasdaq Dubai

Nasdaq Dubai operates within the Dubai International Financial Center (DIFC) and is regulated by the Dubai Financial Services Authority (DFSA). Nasdaq Dubai-listed companies have disclosure and reporting obligations to both Nasdaq Dubai and the DFSA. The Takeovers section of the DFSA rulebook requires mandatory takeover offers from persons acquiring 30% or more of the voting rights in a listed company.

UAE free zone

As mentioned above, UAE has more and more offshore free zones such as DIFC, ADGM, Jebel Ali Free Zone. Lenders in acquisition finance transactions prefer to structure the transaction to ensure that the borrower or lead debtor is incorporated in a free zone such as DIFC or ADGM.

The enforcement of court judgments between the UAE’s onshore and financial free zones is governed by special rules that provide for simplified procedures between the financial free zone and the emirate in which it is located. The specific implementation procedures depend on the relevant financial free zone.

For the DIFC, Article 7 of the Dubai Law No. 12 of 2004 on the Judiciary of the Dubai International Financial Center outlines the procedure for the enforcement of Dubai Court judgments and arbitral awards approved by the Dubai Courts in the DIFC (and vice versa) (as amended). In addition, the ADGM Court Regulations and the Memorandum of Understanding between ADGM Courts and the Abu Dhabi Department of Justice (2018 MoU) provide for the mutual recognition and enforcement of ADGM Court judgments by courts within Abu Dhabi (and vice versa).

Enforceability of foreign judgments

The UAE has entered into agreements with several countries on judicial cooperation and recognition of judgments and arbitral awards. The UAE is also a party to the 1983 Arab League Convention on Judicial Cooperation among States (Riyadh Convention), which regulates the recognition and enforcement of judgments among member states. Generally speaking, the jurisdiction of a court that rendered a judgment in a country that is a member of the Riyadh Convention or a country that has a treaty with the UAE is not subject to review, and foreign judgments are likely to be enforced, subject to certain exceptions.

Enforcement of judgments from countries with which the UAE does not have a bilateral treaty is subject to the provisions of the UAE Civil Procedure Law. The main test performed in such cases is whether there is a reciprocal arrangement for the enforcement of the judgment between the UAE and the country from which the judgment was issued. UAE courts have been enforcing foreign arbitral awards since 2006 when the UAE ratified the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).