Preparing for an IPO
Craig Hewett provides a clear understanding of the formalities involved in taking a company to the IPO level.
If your company is among the growing number of SMEs that is thinking about going public on NASDAQ Dubai, you will benefit from a clear understanding of the steps involved. The basic process, including timelines, is set out below.
A key criterion, which you should be aware of right from the start, is that you should have a market capitalisation of at least US$10 million when you carry out your initial public offering (IPO). If you meet that test already, fine. If not, you can still start preparing to IPO if you are confident that your company will become that large.
This rule about the company’s size is set by the Dubai Financial Services Authority (DFSA), which is the regulator of the exchange. You will be in close contact with the DFSA on your journey to going public, as it oversees the rules that you will follow and its approval must be obtained for you to list your shares. The DFSA, like NASDAQ Dubai itself, is based in the Dubai International Financial Centre (DIFC) free zone and its rules are based on international standards, to help ensure that your listing will be a success.
Before you engage in detail with the DFSA there is plenty of useful groundwork that you can be doing, preferably as early as possible. This could well be over a year before your eventual IPO.
Make sure the company accounts are in order: The DFSA usually asks for audited financial statements going back three years. It’s worth talking to external advisors, such as an accountancy firm to ensure that this is done correctly.
Create a strong corporate governance structure: This includes a board of directors with decision-making powers. Major shareholders can of course sit on the Board and it must also include Directors who do not have close ties to them, known as independents. This structure aims to ensure that the company is run in the interests of all its shareholders. It also promotes efficiency and best practices, which support the success of the business.
Start thinking like a public company: This includes becoming accustomed to the idea that once you are listed you will be regularly disclosing certain information to investors, under the DFSA’s rules. It pays to decide well in advance who in the company will be in charge of doing that.
Perhaps your company ticks these boxes already. Some SMEs, however, need a long time to put them in place, before the next stage of preparation for their IPO begins. At any time, please come and talk to us at NASDAQ Dubai. It’s never too early. We can address your questions and give you a steer about many aspects of the IPO process.
Run-up to IPO
You will need to appoint an experienced adviser to manage the sale of your company’s shares to the public. A law firm will also be required to ensure you comply with laws and regulations. Also key is a public relations firm to help you tell the media about your company’s success story. These advisers are typically appointed several months before the IPO.
With the advisers in place, you can focus on many aspects.
Structure of the IPO: Under the DFSA’s rules, at least 25 per cent of the company’s shares must be sold to the public. This allows owners to keep control of it. A larger percentage can be sold if the owners wish. The owners can also decide whether they wish to sell new shares to fund the business, or sell some of their existing stake for their own purposes. Or they can do both.
Prospectus: This is the core document around which your IPO will revolve. It will contain a description of the company’s business, information about its directors, and the reasons for the IPO, as well as financial statements and details of the share offering. It must be in English and be approved by the DFSA in order for it to approve the listing. Your advisors will help you to get it right. The prospectus is made public and is your main tool to persuade investors to buy shares.
Application to trade: In parallel with your application to the DFSA, you will apply to the exchange for your shares to trade. NASDAQ Dubai has created rules to encourage a healthy amount of trading after the listing. These include that a company must typically have at least 250 shareholders, or else appoint a broker to offer both buy and sell prices in the shares simultaneously.
Public relations: Your public relations firm can help you decide what messages to emphasise to the media, including through press conferences and press releases.
Roadshow and selling shares: Your investment bank will help you identify potential investors and will introduce your company to them. These meetings are together known as a ‘roadshow’. Executives of your company will make presentations to the potential investors. When bids for shares come in, the bank will help you decide what price to sell the shares at, and to whom.
A final application to the DFSA for prospectus approval is typically made about a month before the planned IPO date. Below are some typical timeline details:
The IPO process is complete on the day that the shares list on NASDAQ Dubai. Trading begins at the same time. From start to finish, the process of joining NASDAQ Dubai’s market has been designed to be readily achievable by companies large and small.
About the author
Head of Business Development, Nasdaq Dubai
Mr Hewett has responsibility for the commercial activities of the exchange including product and market development, membership, training and market data. Prior to joining NASDAQ Dubai in July 2011, he was Chief Business Officer of the Bahrain Financial Exchange from 2008. He has international expertise in trading a variety of asset classes, with a particular focus on derivatives. As Deputy Commercial Director of the London Metals Exchange (LME) which he joined in 2000, Mr Hewett was responsible for new business expansion, focusing on revenue development, the commercialisation of key business activities and ensuring the exchange achieved its growth strategy. Prior to joining the LME, Mr Hewett held numerous positions with organizations such as Xerox where he was involved in developing sales and marketing strategy for a number of products and services. He holds a BA (Hons) in Business Studies and an MBA from Newcastle University. He has lectured regularly on hedging and managing price risk on the LME.