The UAE has opened the door for family-owned companies to float some of their stock in a public offering without relinquishing too much control, but will they take the plunge? The UAE federal government recently lowered the ceiling for commercial companies to float 30 percent of their shares in the stock market, from the 55 percent minimum earlier, a move widely seen as a tantalizing offer for family-owned businesses to seek a public listing.

“This is a massive change. I think the government has changed the regulation knowing it will increase activity in the market and re-energize it,” Amer Halawi, securities director at The National Investor, said.

Halawi recently wrote a report on the UAE IPO market before the law was amended, identifying the 55 percent law as one of the seven issues to be addressed to reactivate the country’s IPO market. “Reducing the minimum float would encourage more businesses to come to market, thus participating in greater depth, breadth — and ultimately liquidity — for the market,” he wrote in the report. Now that hurdle has been removed, will family businesses step up?

Khalaf Habtoor, founder of the Habtoor conglomerate, is the first to heed the call, stating on Arabic TV channel Al Arabiya that Al-Habtoor Engineering could be the first jewel from his conglomerate on the IPO block by 2008. This will be the first time a family enterprise offers a public sale in the UAE. Family concerns in other Gulf states such as Saudi Arabia, Bahrain and Kuwait have gone public in the past, with mixed results.

Fawaz Abdulaziz Al-Hokair in Saudi and Nass Corporation in Bahrain were among the half a dozen family company listings in the past few years, while Kuwait’s Hayat Communications Company went for a private placement before a public listing on the Kuwait Stock Exchange in 2006.

The cupboard is even barer in the UAE. Tentatively, only Future Pipe Industries, owned by a Lebanese family group, Damas Jewellery and Damac Holding have announced their intention of going public in a couple of years, according to the Zawya IPO Monitor.

“I hope the law will mean the listing of more quality businesses,” said Deon Vernooy, head of asset management at Emirates Investment Services, who manages more than AED5 billion in funds. “I would like to see major family businesses come on the market. But these processes take a long time, there might be a one or two-year lead time.”

“Although it is a step in the right direction, I am not sure if it’s enough on its own to spur family businesses into action,” Vernooy said.”

Going public carries with it a different set of disciplines and some family businesses may not be comfortable in answering shareholders, adhering to much stricter financial transparency, or even handling the glare of media attention.

Interestingly, the Dubai International Financial Exchange (DIFX), which is regulated by the Dubai Financial Services Authority, offers 25 percent flotation, but there has hardly been a queue for listing at the free zone exchange, as companies have to comply with much stricter rules.

When launched in 2005, one of the exchange’s key mandates was to encourage regional family concerns to list. But the DIFX ticker currently boasts of only one family company, although DIFX sources say as many as 30 large family businesses in the region are “seriously” considering an IPO on the exchange.

There also appears a resistance to relinquish control, with some such as Husain Sajwani, head of Damac Holding, arguing that the flotation ratio should have been even lower to 20 percent. But that could make the stock illiquid. “We need to think of issues such as liquidity. If the stock does not trade and does not represent a substantial portion of absolute market capitalization, the listing becomes meaningless. Also, investors will punish the stock if the company continues to be run as a private concern.”

There are other things to consider as well. Lack of book building during a company’s IPO process could also impact the valuation and returns to founders who have spent years building their business empires. At the moment, the UAE Ministry of Economy determines both the price and the timing of the IPO.

“We are advocates of price ranges and market consultation, which allow the issuer to test the market for a given price,” Halawi said. Such a practise often results in adjustments to price ranges (up or down, either within or outside a range). It also allows the issuer to gain a certain degree of confidence, and to minimize mis-pricing mistakes. Yasmina Chraibi, senior financial analyst at Zawya.com, said that the ministry of economy should not outsource the valuation of a company to one of the Big 4 accounting firms.

“Globally, this is done by investment banks, or lead managers, who are better equipped to value firms,” she said._Halawi argues that some UAE companies may have gone for a listing in the past few years for entirely the wrong reason.

“For many companies, public flotation is seen as get-rich-quick scheme,” Halawi further said. “We suspect that the unbelievable amounts raised in a very short period of time have encouraged UAE business-owners to get into “IPO mode”, regardless of the fundamental need to raise money — in other words, going public just to get rich, or richer.”

Perhaps, it’s the mindset, more than the laws — that need to change.

(The writer is managing editor of Zawya.com).