engaged for many months, including periods of high intensity, and it is critical they can work well with each other and the company. The investment bank acts as the quarterback for the IPO, advising on execution, valuation and pricing, as well as marketing the offering to potential investors. Banks will often act as a sponsor, providing a link between the company and the relevant exchange. In many IPOs, the same investment bank or banks underwrite the offering, taking up shares that | In-house preparing for ipo are not bought by investors on launch. Account- ants will be involved in preparing public and private reports relating to the IPO-offering document, performing financial due diligence and providing advice statement which is often required to be included in the offering docu- To IPO we go ment. They will also ensure that the company has effective financial reporting procedures. The ‘Going public’ can be beneficial for a private company looking to develop, company’s legal advisers will play a key role, but the road to success presents many challenges say Andrew Tarbuck not only in drafting the offering document and and Oliver Simpson other documents needed, but also in advising on any pre-IPO restructuring and on applica- peculation continues that the Middle IPO process can be offset by efficient project ble securities laws in jurisdictions into which East (IPO) management, for example, appointing an IPO the offer will be made. An IPO team will also market will awaken over the second committee, and appointing the right team of require the involvement of financial PR advisers, half of 2010. There are promising advisers. Issuers must be fully committed to who will take the lead on strategic and tactical Ssigns that this has already started, both in the IPO and make resources available for the communications, preparation of press releases the GCC and further afield. smooth running of both the business and the (often working with the lawyers) and engaging An IPO is more than a one-off capital raising IPO throughout the process. A united board, with the press and media. Depending on the exercise. It is a major milestone in the life of any unanimously approving a listing as the appropri- market, it may be imperative to have advisers company, and one that necessitates fundamental ate course for the company, having considered with Arabic language capability. In all regional and lasting changes to the corporate mindset other capital-raising possibilities, is critical. markets, it is hugely advantageous to have of the company’s directors and shareholders. advisers who are well known and regarded by In the Middle East, a hitherto private compa- the local securities regulator and other relevant ny’s transition on listing into a world of “The IPO process official bodies. increased publicity, scrutiny and disclosure, should be considered A lot of focus is often given to the advisory and a potential minefield of ongoing compli- an endurance event team, but it is important to note that it is the ance and corporate governance requirements rather than a sprint. company’s IPO, the company’s team and the presents particular challenges. It will inevitably company which are the drivers behind the divert significant transaction, not the advisers. A successful issuer Planning ahead, starting early will be pro-active and take the lead in driving From the initial decision to float to the day of management time the IPO process forward and ensuring the admission to trading, an IPO takes time to away from managing advisers are kept informed; the role of an IPO complete – usually six to nine months, but some- the business” committee and appointment of an external IPO times longer. Planning ahead and starting work liaison is recommended. Potential investors will early are crucial. Equally important is allowing management also needs to be confident of the be particularly interested in the senior manage- flexibility and reacting effectively to changes equity story that the company will market to ment of the issuer which should have a blend in circumstances. A company should target a potential investors. “Why should an investor of talent and experience (industry sector and two- to three-month window during which it buy our shares?” is a question directors should listed company experience being particularly aims to list. In the Middle East, particular regard constantly ask. potent) to attend roadshows, conduct media should be had to the effects, in terms of time interviews and generally bring dynamism to management and market conditions, experienced Getting the right team in place the IPO process. Continuity is essential and any during summer and Ramadan. The core advisory team for an IPO includes senior management changes should be done as The IPO process should be considered an investment banks, accountants, legal and PR soon as possible so they have some track record endurance event rather than a sprint. It will advisers. Getting the team in place is more at the time of the IPO. Senior to the company inevitably divert significant time away from than a matter of agreeing fees and negotiat- on IFRS compliance and the working capital managing the business. The opportunity cost ing engagement letters. It is also crucial that management changes immediately prior to the of management time being devoted to the the right chemistry is there. The team will be IPO can be viewed as destabilising. Corporate

32 thebrief JULY10 www.thebriefonline.com

TB043_32-34_in house.indd 32 7/13/10 2:55:23 PM of accountability to family members. Each exchange or regulator will have its own corporate governance requirements but international best practice is a blend of recom- mendations from public or quasi-public bodies, middle-ground “comply or explain” provisions and strict legal or regulatory requirements, particular to that jurisdiction. Invariably, potential issuers need to adopt a formal board structure with clear lines of responsibility leading downwards from the board through senior and middle management into the opera- tional areas of the business, and clear and well documented reporting lines in the opposite direction, with a view to keeping the board appraised of significant developments at every level in the group. there is a The board of directors will need to comprise daunting array of regional and a balance of executive directors and independ- international ent non-executives (NEDs). In the GCC region, stock exchanges to choose from in practice, finding NEDs with the requisite experience who meet the test of being truly governance requirements may also necessitate efficient settlement procedures. The decision independent can be difficult. In the UAE, for changes to senior management. on which exchange to select will also depend on example, foreign ownership restrictions require market considerations. An IPO candidate will that the chairman and a majority of the board Choosing an exchange typically prefer to list on a market that is close of directors of a public joint stock company be At first blush, there is a daunting array of to its geographic target audience, has sufficient UAE nationals. Given the small pool of avail- regional and international stock exchanges to liquidity and ideally already hosts other listed able UAE national directors and the extensive choose from. However, not all exchanges are companies from the same or similar sectors web of family, social and business relationships appropriate for, or even open to, all companies. against which the company can benchmark. between them, the task of finding and engag- Selecting the right exchange on which to list ing truly independent NEDs with the requisite is crucial, and will require consideration of a Getting the financEs in order skills is not easy. number of factors. These include the relevant Many exchanges require issuers to have a The company will also need to establish exchange’s admission criteria, including its trading track record; often at least three finan- formal board committees, which should be market capitalisation and free float (being the cial years. For the period between the latest populated by NEDs and not by executive direc- proportion of the company’s shares that must be financial year-end and the date of launching tors. These committees will likely comprise in public hands) requirements. More developed the IPO, much debate is often had about the an audit committee, a nomination committee markets have senior and junior exchanges aimed need or otherwise to publish interim financial and a remuneration committee. In turn, the at companies of different sizes or in different statements. The majority of exchanges require board committees will need to be supported by stages of their development. An example of this financial information to be prepared in accord- appropriately staffed and trained administra- is the London market, with the London Stock ance with IFRS, together with an unqualified tive functions within the company. Exchange’s main market listing the largest opinion from the accountants as to the pres- It is important that this corporate govern- public companies and AIM and PLUS markets entation of the financial information in the ance “ecosystem” is introduced as organically hosting a wide range of smaller to medium-sized offering document. For a previously privately as possible – ideally by complimenting existing issuers. Different exchanges also have different held company, which may not be accustomed structures and practices. It is important the requirements as to the financial track record to reporting publicly its consolidated group board committees and other such checks and for companies coming to list. Some exchanges financial information in line with IFRS, the balances are not viewed as an internal police focus on issuers from particular industry sectors move to a formal set of financial information force, but rather as helping to enhance share- (such as mining or high-tech) and have specific will be a significant change. holder value and promoting the company. The rules tailored to such companies. way to approach good corporate governance is to Issuers also need to assess the suitability of fostering a listed company ethos look at what the issuer currently does and then the ongoing reporting and other compliance Quite apart from the mechanical steps required develop that existing system to comply with requirements of the particular exchange. Does to effect a successful IPO, becoming a listed corporate governance principles. It is psycho- the size, nature and structure of the company company entails a fundamental and lasting logically and practically difficult to start with enable it to comply with these requirements in change for any business. This is perhaps particu- a sterile corporate governance model and then a timely manner? Issuers will be attracted to a larly so in the Middle East, where private compa- force it onto the company. market that has a track record of good trading nies are often closely held family businesses In the run-up to the IPO, the company will volumes, large numbers of market participants with informal internal governance structures also need to appreciate that any arrangements (issuers, brokers, institutions and retail) and and a tight group of stakeholders with a history between the company (or its subsidiaries)

www.thebriefonline.com JULY10 thebrief 33

TB043_32-34_in house.indd 33 7/13/10 2:55:24 PM and related parties and other arrangements of REGULATORY DEVELOPMENTS Middle East market mergers a non-arm’s length nature will need to be When the curtain rises on the next • Acquisition of NASDAQ by the terminated or regularised prior to the IPO or IPO season, it will do so in a different (DFM) was else disclosed to investors in the offering docu- environment from that of the mid-2000s, announced in December 2009. This ment. Such arrangements may be commonly both in terms of regulations and, in may signal the consolidation of regional found in private companies – particularly those the Middle East, the choice of regional stock exchanges. NASDAQ Dubai’s that are held by a founding family – and include exchanges on which to list trading, clearing, settlement and custody soft loans and contracts to provide goods or functions for equities will be outsourced services to related parties on more favourable UAE – corporate governance to DFM and go live on July 11. terms than those offered to third parties. • New corporate governance requirements Corporate governance is not a tick-box exer- have taken effect under resolutions • QH partners up with NYSE Euronext to cise. It is integral to investors’ decision making; issued by the Emirates Securities and form the Qatar Exchange. In June 2009, it is very easy for an investor to simply invest Commodities Authority (ESCA) and the NYSE Euronext agreed to acquire a in another company because it demonstrates UAE Ministry of Economy. The focus of 20 per cent stake in the Qatar Exchange better governance. A successful listed company the latest measures is on the board and (previously the Doha Securities Market). is one whose board not only recognises the need the establishment of board committees to comply with applicable requirements, but – most notably audit, nomination and UK – a new-look listing also understands the benefit to the company in remuneration committees. Regime took effect on April 6, 2010. A doing so and genuinely supports, and seeks to key aim is to create a more “level playing foster, a culture of good governance throughout • ESCA celebrates 10 years since its field” between UK and non-UK issuers. the organisation. founding with a conference in Abu The company should also establish a team Dhabi. Speakers reflected on the • New listing categories of “Premium” that is properly trained and resourced to post-crisis environment and the need and “Standard” replace “Primary” and discharge ongoing obligations post-listing. for greater emphasis on corporate “Secondary” listing categories, with an listed companies are subject to a wide range governance in the UAE. easier process for migrating between of ongoing requirements. Some of these require listing categories. action by the company on an almost immediate, Kuwait – Capital Markets Bill or at least overnight, basis, such as the require- promises overhaul • Higher corporate governance burden for ment to make a public announcement following • Kuwait is to transform overseas companies. A non-UK issuer certain material events affecting the company into a corporate body, 60 per cent of with a premium listing now required or its share price. These events often require which will be state-owned and the to “comply or explain” against the UK consultation with the company’s external remaining 40 per cent to be offered to Combined Code. Overseas issuers also legal advisers and it is therefore critical that Kuwaiti investors via an IPO. required to include pre-emption rights the company has in place a team ready to deal in their constitutions. with such matters on a timely basis. • Capital Markets Authority (CMA) It is important, where possible, that the established as an independent body with Developments on PLUS markets corporate governance and compliance systems a wide range of functions, including • PLUS markets keen to do business in the “go live” in sufficient time ahead of the IPO for rule making and regulatory oversight Middle East. As well as introducing a the company and its directors and employees to capacities. The bill also creates a Stock new set of rules for issuers, PLUS markets acclimatise to the new, more transparent and Market Court, which will hear regulatory is positioning itself to attract Middle accountable environment. This also enables compliance cases brought by the CMA, as East issuers, branding itself “the bridge the company to assess the effectiveness of such well as civil and commercial disputes. between London and the Middle East”. structures and iron out problems. There is also a marketing advantage to this. The offer- ing document will need to list the nEds and tors looking to profit from market movements. ensure that senior management are educated explain the company’s board and committee Some will be activist shareholders while others as to the consequences of making statements structure to investors, and it is clearly preferable will be passive. beyond the shareholder base, and dealing with increased scrutiny. It is of if the company is able to state in the offering there will be intense public scrutiny from many paramount importance that the IPO is kept document that such directors and committees constituents with an interest in the company. Of confidential for legal and commercial reasons have been successfully in place for a period of course, in some jurisdictions (such as the uK), until the IPO is ready to launch. months (or years), rather than having been directors now have a duty not only to investors Embarking on an IPO is an exciting and appointed recently prior to launch. but employees and the wider community. potentially successful way for a private company Another key change for a company and its to reach the next level in its development. The management following listing is the fact that the eQUity story IPO is just the beginning of a different life as a the company will have a much broader share- Good PR and internal and external communica- listed company and preparation and changing holder base with potentially diverse objectives. tion is integral to the IPO process by building the corporate mindset are key. ● Some will be long-term investors looking for a the “equity story” and brand awareness and steady dividend stream. Others will be hedge also keeping employees informed. A good ConTriBUTorS AnDReW TARBuCK Is A CoRPoRATe FInAnCe AnD CAPITAL MARKeTs PARTneR AnD oLIVeR sIMPson An AssoCIATe AT The DuBAI funds, arbitrageurs or other short-term inves- website is essential. Financial PR advisers will oFFICe oF LAThAM & WATKIns

34 thebrief JULY10 www.thebriefonline.com

TB043_32-34_in house.indd 34 7/13/10 2:55:24 PM