Milestone for investors' rights

Directive to IPIC to raise its buyout offer seen as signalling a level playing field in Emirates.

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Yesterday's decision by a Government committee to raise the price paid to minority shareholders in Aabar Investments sets a precedent for shareholders' rights and paves the way for new regulations on mergers and acquisitions, lawyers believe. The committee, comprising representatives of the Emirates Securities and Commodities Authority (SCA), the Federal Ministry of Economy and the Abu Dhabi Department of Economic Development, told International Petroleum Investment Company (IPIC) to raise its Dh1.45 per share offer for Aabar to Dh1.95. IPIC, a government-owned investment vehicle that owns 70 per cent of Aabar, made the Dh1.45 offer last week as part of a plan to buy the rest of the company and take it private.

The UAE currently has no regulations explicitly covering takeovers. Given the lack of legal clarity, the Government's decision on IPIC's offer was closely watched because of its implications for minority shareholders. Some investors criticised the Dh1.45 price as too low, given that Aabar shares had traded at above Dh2 in recent months. The price also valued the company at less than half its book value.

"The ultimate objective of securities regulation is to protect the investor and, more importantly, to protect the minority shareholder while recognising the right of majority shareholder to control the company," said Karl Tabbakh, a partner at DLA Piper Middle East. "If you look at most securities regulations, it's all got a consumer-protection flavour to it. It's so the investors have full, true and plain disclosure about all material facts."

Elsie Habib, a lawyer at Hadef and Partners in Dubai, wrote in a brief after the plan to delist Aabar was revealed that there were procedures in place under which SCA could make a fairness ruling and protect minority shareholders' rights. "In making their decision, SCA takes into consideration, among other factors, whether the delisting might contravene SCA rules and regulations or the UAE Companies Law," she wrote. "SCA seeks to ensure that there are no contraventions, as well as assesses whether the conversion would be detrimental to shareholders' rights."

Until yesterday's ruling, however, it was unclear how regulators would respond to the offer. Analysts were concerned that if SCA validated the Dh1.45 per share price, some foreign investors might be dissuaded from buying shares on the UAE's markets because of a perceived lack of shareholder protections. Ensuring that all investors are treated equally is a fundamental principle of markets that goes to the core of regulators' responsibilities, lawyers say.

Mr Tabbakh said he hoped the IPIC takeover would lend greater urgency to planned reforms of laws covering companies and markets in the UAE, as well as give a push to the strengthening and updating of market oversight. The Ministry of Economy said in April it was weighing a long list of new regulations, including measures that would bring more clarity on shareholders' rights. Regulators, Mr Tabbakh said, should address the country's lack of a takeover framework such as exists in the US and Canada, where courts decide on the fairness of takeover offers, or in the UK, where a takeover panel mediates shareholder rights in such transactions. He said they could also address uncertainties over the responsibilities of corporate boards in takeovers and special rights for minority shareholders.

"What that will give us when we sort that out is a more established framework that will give bigger credibility to the markets here and better encouragement for foreign investors to come to the region," he said. "Time and again, the biggest criticism we hear in the region is that there is no transparency, an absence of regulation and no liquidity. If there was transparency and regulation, there would be more liquidity because people would be more interested in investing here."