The United Arab Emirates has bounced back from the financial crisis of 2009-2010, when it came perilously close to sovereign default. Infrastructure construction has returned to full swing, while M&A deals abound, which means more work for law firms both in terms of deals as well as the resulting arbitration and litigation. Ranajit Dam finds out more

When the global financial crisis of 2008 finally made its way into the UAE a year or two later, it made its impact felt quite visibly. Caught in the middle of a manic construction phase, Dubai in particular was pushed to the brink of sovereign default by the end of 2009, and the debt restructuring that followed resulted in so many unfinished towers that the emirate looked closer to an empty construction site. Businesses raced each other to the exit, and an atmosphere of gloom prevailed.

Fast forward to about five years later, and the country is well on its way to recovery, helped in no small part by a spurt in oil prices, increased government spending and a renewed impetus in tourism, transport and trade. In addition, successful restructuring of debt, the calming stability of Abu Dhabi and helpful monetary and fiscal policies have helped as well. Construction is recommencing and infrastructure projects are being planned, even if not at the same pace as before. The UAE’s GDP reached $419 billion at the end of 2014, a 4.8 percent rise on 2013, according to the International Monetary Fund (IMF), which further predicts that GDP will continue to grow at a rate of 4 to 5 percent over the next seven years.

The rebound has also brought back smiles to the faces of law firms, which are seeing a resurgence in work, not just in terms of the infrastructure work as well as the return of M&A deals, but also in arbitration and litigation from the resulting disputes. Additionally, capital markets work in Dubai is also on a roll. “The capital markets have been active in Dubai [in the past year] with seven IPOs in total,” says Husam Hourani, managing partner of Al Tamimi & Co. “Two of them were London listings, one was on NASDAQ Dubai, and the remaining four listings were on the Dubai Financial Market (DFM). We advised on the majority of these IPOs.” He adds that all the 2014 IPOs on DFM were oversubscribed with “a positive outlook.”

These IPOs included one by Emaar Malls Group, a unit of the UAE’s biggest listed developer, Emaar Properties, which was the largest initial public offering in Dubai since 2007. Apart from size and being representative of the return of confidence to the UAE, the IPO was also the first DFM deal to combine retail and institutional investors. “For the first time on the DFM, we have had a bookbuilding IPO for the Emaar Malls transaction,” says Hourani. “The Securities and Commodities Authority (SCA) has accepted and issued a regulation which will enable sell downs in IPOs rather than the previous model being limited to increases in capital. This should make it easier for any future IPOs to follow the same path.”

Jimmy Haoula, managing partner of Bin Shabib & Associates (BSA), says the rebound is being reflected in the kind of work his firm has been doing in the past two years. “Right after the crisis, we felt the impact on real estate and corporate/commercial transactions in general,” he says, “They vanished. Recently, the confidence in the economy reflects well on M&As and new business opportunities and expansion in the region that is driven from Dubai. The impact was also clear on the contentious legal work, where we have noticed a slight reduction in requirements except for material transactions, unlike the time, post-crisis, when every matter was contentious.”
International law firms have similarly shown their confidence in the country of late, including Watson Farley & Williams and Switzerland’s Bonnard Lawson, which opened in Dubai in late 2014, Cleary Gottlieb Steen & Hamilton (Abu Dhabi, 2012) and Morgan, Lewis & Bockius (Dubai, 2013).

Regulatory developments

One noteworthy recent regulatory development in the UAE, according to Hourani, is related to capital markets: The Securities and Commodities Authority of the UAE (SCA) recently issued a new regulation to give private joint stock companies with a performance history of two full financial years a “fast track” to list on the DFM and Abu Dhabi Securities Exchange (ADX), without the need to convert to a public joint stock company and undertake the IPO process. “The new regulation opens the UAE equity market to a new range of issuers,” he says. “Any UAE private joint stock company which publishes audited financial statements for two complete years, has at least 30 shareholders and shareholder equity not less than paid up capital, is eligible to apply for listing on DFM or ADX.”

He adds that a significant advantage for issuers and shareholders is that existing owners are not restricted from selling down their interest to buyers in the market. “In contrast, where there is an IPO, the founders cannot sell their shares for two years after listing. The new pathway may offer a faster exit for private equity firms and other shareholders choosing to sell down,” says Hourani. “The proposed new regulation is an intriguing option for prospective issuers under current buoyant market conditions and offers an avenue for shareholder liquidity. This is particularly true of existing proprietors, who would otherwise be restricted from any sell down in an IPO scenario for two years after listing.”

Another regulation, just announced, is the new UAE Competition Law which governs anti-competitive behaviour and monopoly practices. “This has important business implications, and is likely to affect commercial practices and transactions for both local and international entities in terms of merger controls, restrictive agreements and abuse of dominance,” says Hourani, “However, in view of the ability of certain sectors and business types to be excluded, or apply for exclusion, only time will tell as to whether the law effectively delivers on its intended objective of protecting and enhancing competition and combating monopoly practices.”
According to Haoula, the most noticeable regulatory developments in Dubai relate to banking and insurance. “The first brought stability and access to liquidity among banks, and the latter has intrigued the international companies to gain access to the city,” he says.

Investors savvier

Haoula notes that one important trend among investors into the UAE is that they have grown savvier. “We have noticed investors seeking a certain EBITDA return on the opportunities, and most have paid more attention to carrying out reasonable legal due diligence on their transactions,” he says, “We expect to see more of this as the market matures.”

Still, business in the UAE today is “extremely positive,” says Hourani. “The UAE’s non-oil sectors experienced continued growth, driven by strong real estate development activity, tourism, leisure and retailing buoyancy and a continuation of major infrastructure projects.” He highlights the country’s economic free zones, which are designated areas within urban or industrial precincts where foreign investors are permitted to set up 100 percent owned companies and businesses. “The UAE’s free zones, particularly those in Dubai and Ras Al Khaimah, have been very successful and a staggering array of businesses operates from the free zones, ranging from manufacturers to banks and consulting firms,” he says. “The free-zone model in the UAE is rather unique and very attractive for businesses seeking to invest here. We expect to see these continuing to succeed.”

Hourani points out that one sector that is currently seeing exceptional growth in the UAE, particularly in Abu Dhabi, is the healthcare industry. “It is forecast that over the next few years, due to factors such as the rapidly expanding population, greater public awareness of medical conditions and treatment available, higher incidence of lifestyle diseases and deeper insurance penetration, this sector will continue to grow exponentially, becoming a $12 billion industry by 2015, according to the Dubai Chamber of Commerce & Industry,” he says. “The UAE seeks to promote itself through the development of healthcare tourism, attracting patients to its premium facilities from around the region. The government and the government-subsidised insurance schemes also recognise the opportunity to save costs by treating the national population at home, rather than paying for expensive treatment abroad as has been common previously. This forecast growth has fuelled a significant increase in both public and private sector investment in healthcare facilities with high-profile names, such as Cleveland Clinic, John Hopkins and Mayo Clinic now operating in the UAE.”  

2015 predictions

Hourani believes that investors will be very cautious this year about investing in real estate or stock markets due to the continuous impact and effect of the international recession in Europe, the sanctions against Russia, and ongoing instability in the region. “It will have an impact on the retail, hospitality and tourist sectors within the UAE, he says. “However, in my opinion, the UAE and other GCC governments will continue to support their economies by utilising the reserves available to them and maintain public expenditure levels, including upgrades to education, healthcare and flagship infrastructure projects.”

Most GCC governments, including the UAE, have made a substantial commitment to their expenditure budgets for infrastructure projects, and this is one sector which will create a substantial amount of opportunity including rail, roads and airports in the region,” says Hourani. “The government is committed to providing the right infrastructure for business to establish and grow here. We’re seeing more investment by the government in the expansion of airports, telecommunication services, roads, hospitals, schools and so on. Supporting this is also the introduction of new laws and regulations that were needed including the new commercial companies law, bankruptcy law, antitrust law and the investment law. In addition to this, the government is facilitating the set up and renewal of business licences electronically and has introduced state-of-the-art software for business to access all government services electronically which in turn makes it easier to do business here.”

According to Haoula of BSA, more regulations in real estate will be imposed to bring the real estate market into maturity. “We will also see more regulations for the public listing on the secondary market that will see more investments and liquidity in the said market,” he says, “Also, we will see a healthy adjustment to the real estate market that will help the city development flourish. We will see a surge in listings on the secondary stock market, and we will see more investors acquiring local SMEs.”

Legal sector

Even though the UAE has seen some office closures by foreign firms in the recent past, the legal sector continues to remain very competitive with more than 75 international law firms in Dubai alone, and this number is growing. “We have seen more competition with the UAE attracting not only the global firms but also firms from Europe, Asia, Africa and [the] Middle East,” says Hourani of Al Tamimi. “This competition is also providing clients with greater choice in all areas of legal services. The market is also opening up to facilitate the establishment of Asian law firms who wish to provide support to their clients who are doing business here. We are also seeing increased interest from firms based in Italy, Spain, France and Germany. These firms are not global, but they are among the largest in their own jurisdictions and their move to establish a presence here has become necessary in order to better serve their clients. We expect the competition to continue to grow.”

To remain ahead of the pack, Hourani says Al Tamimi’s strategy has first been to ensure that its clients have access to the legal services the firm provides in all Middle East countries that they are doing business in. “As a result, we have opened offices in all GCC countries, with Bahrain being the final one to open in October 2014, and we have offices in Iraq and Jordan,” he says, “We are also the only firm that has rights before local courts in every jurisdiction where we have a presence. We have also established a number of sector-focused practice groups to reflect the growing needs of the market, our existing clients, and new clients coming to the region.”

Haoula, on the other hand, says there is “really no strategy” to stay ahead. “We have expertise, knowledge and access to Dubai that no international firm can have access to,” he says.