LEGAL COLUMN: NASDAQ’s Dubai desert is now in full bloom

Waft OwenWhen the 15-storey twin banners announcing the successful IPO of Emirates REIT [real estate investment trust] were unfurled on the Gate Building in the Dubai International Financial Centre (DIFC) on April 8, 2014, it was a significant event for everyone concerned.

For Nasdaq Dubai it was the first IPO since 2009; for the Dubai Financial Services Authority (DFSA) it was the first ever IPO of a DFSA regulated entity; for capital market participants in the UAE it was the first IPO in the country since 2009; for Shuaa Capital and Emirates NBD (the joint bookrunners to the IPO) it was a highly successful fundraising that was three and a half times over subscribed and, for Emirates REIT itself, it was the timely fulfilment of a promise to investors and the raising of more than $200 million to fund future real estate investments.

Emirates REIT is a closed ended investment company incorporated in the DIFC. Under the DFSA rules it is a public fund, a property fund, a real estate investment fund and an Islamic fund. Prior to its IPO, Emirates REIT had grown from owning just one property in 2010 to having assets under management approximately $325 million. Emirates REIT was the first real estate investment trust to be formed in the UAE and the first regulated REIT in the region. It also has the distinction being the subject of a unique royal decree issued by the ruler of Dubai, Sheikh Mohammed Al Maktoum.

The IPO presented a number of challenges for K&L Gates as lawyers to Emirates REIT. The usual complexities of an IPO were exacerbated by the DFSA collective investment rules, the DFSA markets rules and the DFSA Islamic finance rules all having to be brought together in the first IPO on which all three set of rules were relevant. In addition, as Emirates REIT is a sharia fund, all aspects of the IPO had to be compliant with the principles of sharia with each of the dozens of legal documents, including the prospectus, having to be approved by the REIT’s own sharia supervisory board by way of a fatwa covering both the IPO itself and the transaction documentation. The need to be sharia-compliant meant that a number of standard IPO documents had to be reformulated, including, for example, the underwriting agreement which had to be extensively restructured.

The Dubai property market itself also presented legal challenges for the IPO, including, in particular, the significant amount of connected relationships among many industry players – shareholders of the REIT, property managers, property sellers and other industry participants. A prohibition on transactions with related parties without the pre-approval of each arrangement by a resolution of shareholders is a common requirement on many stock exchanges (including NASDAQ Dubai); however, this would be an impractical and damaging requirement for Emirates REIT that would see its competitors taking opportunities away from it. The legal solution? A regulatory modification was requested and granted by the DFSA permitting an annual advance approval of all related party transactions over the next 12 months.

There were other inevitable hurdles along the way that all IPO lawyers will be familiar with but, in the end, Emirates REIT delivered a true desert bloom for its investors – a successful, high profile, over-subscribed IPO which has paved the way for other funds to follow.

Owen Waft is a partner who specialises in funds and capital markets transactions in the Dubai office of K&L Gates, an international law firm

©2014 funds europe

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