MENA BLR – Reduction in
Nominal Value of Shares (QSE)
Jun 18, 2019
Qatar Financial Markets Authority’s Initiative to Reduce Nominal Value of Shares for Listed Companies in Qatar
By:Ahmed Durrani, Associate
Earlier this year, the Qatar Financial Markets Authority (“QFMA”) announced that it is working towards developing procedures and contemplating relevant methods through which it will implement an adjustment in the nominal value of shares of companies listed on the Qatar Stock Exchange (“QSE”) from QR 10 to QR 1.
From a legal perspective, under Law No. 8 of 2012 and the QFMA Regulations, the QFMA exercises a supervisory and regulatory role over the capital market in the State of Qatar, and is empowered to undertake such measures. The adjustment in the nominal value of shares is also in accordance with the prevalent corporate laws in the State of Qatar, in particular Article 152 of Law No. 11 of 2015 (Commercial Companies Law) which permits the nominal value of shares to range between QR 1 and QR 100.
Further, the QFMA’s measures are aimed at attracting new investors, particularly smaller investors who will not only be able to trade on the stock market but can also expect reduced risks that are generally associated with this industry, such as a decline in share prices. With new capital being injected into the stock exchange, investors can positively expect an increase in the marketability and liquidity of shares and, therefore, an eventual increase in stock prices and shareholders’ value. The projected improved liquidity of the stock market is expected to, ultimately, result in more foreign and larger investments in the Qatari capital market.
In other words, the QFMA’s initiative to adjust the nominal value of shares means that it will result in a 10:1 stock split. Shareholders who, for example, currently own one share valued at QR 10 will then own ten shares at QR 1 per share without affecting the market capitalization and value of a company.
Although the QFMA (or QSE) are yet to formally publish a notification or decision effecting the stock split, this promises to be a step in the right direction for the Qatari capital market.