Stock ownership rules in the United Arab Emirates have been overhauled to boost transparency in the Gulf Arab state's two stock markets and lead to better disclosure during takeovers.
Enforcing the regulations will be the main challenge for the Securities and Commodities Authority, analysts said on Tuesday.
While the SCA did not say when the changes come into effect nor what penalties would apply to infractions, the new rules will require investors to tell the stock market if they intend to buy 30 percent of a UAE-listed company and call for detailed disclosure about ownership in listed companies.
"The board agreed ... to make adjustments to the disclosure and transparency system in order to develop the legislation governing the functioning of financial markets," the SCA said.
The move came a month after Abu Dhabi state-owned firm Aabar Investments quietly accumulated a 20.8 percent-stake in Dubai contractor Arabtec Holding from the market using different subsidiaries.
Aabar's chairman — now also Arabtec's chairman — was quoted by a local newspaper at the time as saying the fund had a 53 percent position. A stock market source told Reuters Aabar owned 53 percent of Arabtec.
The new rules require that an investor pool together all holdings in a specific company — whether held by family members, companies and affiliates — and inform the regulator if the combined ownership is above the five percent mark that normally triggers mandatory market disclosure.
"It definitely sounds great on paper but will it do enough to significantly change what is happening now? We will have to wait and see," said a Dubai-based fund manager, speaking on condition of anonymity due to the sensitivity of the matter.
Under the guidelines, the SCA can reject transactions if it deems them to be against the interests of shareholders or the economy.
The UAE lacks a takeover code which makes mergers of publicly listed companies difficult. Gauging ownership levels in listed companies is complicated by cross holdings through affiliates and separate vehicles which can belong to the same entity.
"It is a positive initiative and something that the market really needs but we will have to wait and see how well these initiatives can be enforced upon," said Mohammed Ali Yasin, an Abu Dhabi-based capital markets analyst.
"The question also is how do you penalize the institutions who are not complying with these rules, when are these rules effective from and what happens to previous such transactions."
Dubai's benchmark index fell 1.0 percent, while neighboring Abu Dhabi was down 0.6 percent.
The UAE, classified as a frontier market by index complier MSCI, has been seeking an upgrade to emerging market status for the past three years.
MSCI is expected to decide later this month on the upgrade, which could attract renewed interest in UAE markets from long-term investors and global fund managers.
"These kind of steps will go a long way in gaining recognition from foreign investors and help in the process of gaining an upgrade," Haissam Arabi, chief executive of Gulfmena Investments in Dubai said. "It is definitely a sign of markets maturing in the region and the regulator getting more active."
Calls for more governance and transparency heightened after the Aabar/Arabtec moves with the construction company's shares more than doubling this year.
Aabar, which tried to buy Arabtec for $1.7 billion in a failed 2010 takeover, has not disclosed what its intentions are with regard to the stock build up and minority investors have been concerned their interests would be overlooked.
Aabar itself delisted abruptly from the Abu Dhabi stock market in 2010, causing an uproar among minority investors.
Several regulations have been enacted in the UAE previously to boost local financial markets but enforcing these laws has been a challenge for the regulator.
Last year, the UAE postponed draft regulations on its nascent asset management industry, which were seen as a key step for investor protection and boosting market confidence, after market players voiced concerned that some of the proposals lacked clarity, sources said.
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