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This article attempts to highlight key legal features of the Qatari Initial Public Offering (“IPO”) regime, by touching upon basic principles that must be considered as they are often misperceived, while highlighting the main parameters of the process.
Though a basic distinction, it is important to note that undergoing an initial public offering is separate from listing a company’s shares on a stock market. The offering process is a form of selling shares, while listing creates a platform for trading of shares on the screen of the stock market.
However, IPOs can be defined as the process by which a company offers its share for the first time, for subscription to an un-identified number of potential shareholders (investors). The offering of shares to an un-identified number of shareholders distinguishes IPOs from private placements, in which shares are offered to pre-identified investor(s).
Possible forms of IPOs
An issuer company can offer its shares to the public in an IPO either via a Greenfield offering at the time of incorporating a new company in the form of a public joint stock company. Alternatively an existing company in another legal form, other than a public joint stock company, can offer its shares to the public at the time of conversion by increasing its capital proportionally to offer the minimum free float or by sell down or a combination of both if the pertinent
regime so permits.
Key legal requirements
IPOs under the Qatari regime are regulated under the Commercial Companies Law (“CCL”), the law on the Qatar Financial Markets Authority (“QFMA”) the (“QFMA Law”), the QFMA’s regulations on offerings and listing the (“Regulations”) and the Qatar Exchange Rulebook (“QE Rulebook”).
From the above noted legislations, the key requirements for undergoing an IPO can be summarised as follows:
Implications of going public
When a company announces it is going public, it encounters severe changes. The key implications of going public can be summarised as follows:
The machinery involving the process and documentation required for completing an IPO before the respective regulators, which may differ depending on the nature of the issuer’s activity and underlying regime, is sampled a simplified format in the below chart.
This process should be carefully prepared and ongoing communication with the regulators should be maintained without too much deviation from the regulators format. Attempting to import overly complex structures, while not taking into account the particulars of the local regime in terms of size, track record and existing regulations can in many cases be unrealistic, un-enforceable and could lead to abortion of the IPO.
However, not all sophisticated structures lack basis in Qatar. Many structures and provisions (e.g. poison pills or independent board structures) do have legislative grounds and can be adapted to the local legal environment if well thought out and properly structured. An example to illustrate this is ‘green shoe option’, under which the issuer may authorise the issue of further share in the event of exceptional public demand. Though Article 85 of the CCL addresses the event of over subscription, the CCL does not strictly restrict the increase portion of issued share in the case of exceptional public demand. Accordingly, if an offering structure can be designed to permit a reserve tranch to be distributed in the event of exceptional public demand. If such a structure is presented to the regulations in a simplified manner, while highlighting market benefits of same, the regulator could agree to implement such a structure if explained step by step. Another basis to bolster the legal position of ‘green shoe options’, is that the grounds of the subscription is that of a contractual nature. As such, the parties can agree to the terms (i.e., the company and subscribers) provided the same does not contravene public order (i.e., in this case mandatory provisions of the CCL).
This is not to say that the regulators will admit such arguments without questioning, however, in progressing markets it is always recommended to initiate novel solutions that do fit within local laws.
There are very basic practical/legal considerations that all founders must give careful consideration to before taking a final decision to go public. These considerations can be summarised by answering the following questionnaire:
There are pros and cons for going public and an IPO is not a prescriptive process to resolve pending concerns of the company, rather it is a strategic decision that takes the company into a new dimension. As such, the process must be prepared and thought of well in advance and not adopted on the basis of a quick decision at a peak market time.