“Our experience has been that things move very slowly in the UAE, so this [change] might not ever occur,” said Sam Instone, chief executive of AES International, whose comment was echoed by others with advisory businesses there.
“However, if it did, there would be a lot of benefits for foreign financial firms, such as ours, and it would make the UAE an even more attractive place to do business than it already is.”
News that UAE officials were reviewing a draft law that would permit 100% foreign ownership of some types of companies, including financial services firms, came last week, in a Bloomberg story which quoted Mohamed Omar Abdulla, undersecretary of the Abu Dhabi Department of Economic Development.
According to Abdulla, the Abu Dhabi government “and others within the UAE are reviewing the draft” law, Bloomberg reported, adding that Abdulla did not say when the law might be passed.
As described by Bloomberg, the proposed law would apply to “some industries outside of” the more than three dozen free zones that exist throughout the UAE.
Currently, foreign businesses are allowed to own 100% of companies located within a free zone, providing they stay inside of it.
But outside of the free zones – which are designed to accommodate specific industries, such as, in the case of the Dubai International Financial Centre, financial services – an Emirati or Gulf Cooperation Council entity, usually an individual, must hold at least 51% of a company’s shares.
This is in spite of the fact, Bloomberg noted, that foreigners make up about 90% of the UAE’s population of 8.3 million.
Owning the majority share of one or more foreign-owned businesses is said to have become a livelihood for many Emiratis and other GCC nationals, whose annual fee, those familiar with such arrangements say, is normally based on the power and influence they command in the Emirate in which they live. As a general rule, these majority-share Emirati owners are expected to stay well out of active involvement in their companies.
Perhaps not surprisingly, powerful interests in the UAE and Gulf are said to prefer to keep the status quo, rather than allowing 100% foreign ownership of such entities as banks.
‘Easier exits’
Mondiale (Dubai) chief executive Sean Kelleher noted that the great advantage for advisers about having a more normal ownership structure in the UAE “would be that ‘exit strategies’ would be easier to organise”.
“Currently, local company law together with the 51% local ownership rule means that question marks remain over the business value methodology,” Kelleher added.
What is more, he went on, as the “RDR Mentality” increases, and advisory businesses change to accommodate the new remuneration models, “corporate value increases as an issue”.
“So, in this light, anything that brings greater flexibility to how the business value is transferred is going to be well-received."
‘Old story’
Robert Parker, chief executive of the Holborn Group, another advisory firm with a Dubai presence, noted that the idea of changing the UAE’s ownership rules "has been around for a number of years – probably four or five", and periodically gets "taken off the shelf and dusted down", largely because the International Monetary Fund has stated that it regards the current system as uncompetitive and untenable.
"If it [a change in the rules] ever does happen, we will only know about it the day before," he added.
