Interview: David Walker, Partner, ASAR Legal
What are the legal considerations and challenges facing mergers and acquisitions (M&A) in Kuwait?
DAVID WALKER: Organisations engaging in M&A in Kuwait need to be particularly mindful of, among other things, foreign ownership restrictions and Competition Law considerations. There is a general requirement that at least 51% of a company’s shares need to be held by individual or corporate Kuwaiti nationals. While there are certain exceptions to this restriction on foreign ownership, the regulation tends to apply to most situations, which can result in foreign investors being unable to obtain full control over a local company. This remains a primary limitation for foreign investors, and it can act as a disincentive for potential funders.
Another factor influencing M&A activities, both for Kuwaiti companies and foreign entities operating in the country, is the Competition Law. This legislation prevents anti-competitive practices and the misuse of dominant market positions. Its impact extends beyond domestic transactions, as it covers deals made abroad that affect Kuwaiti markets. The financial threshold for an M&A transaction to require approval is much lower than in other regional markets. Such reduced limits affect a large volume of transactions, requiring businesses to submit an economic concentration application to the Competition Protection Agency. This is something investors must be mindful of when engaging in M&A transactions, as the timeframe for obtaining approval for such an application can have a significant impact on the closing of the transaction.
How might new regulations covering ultimate beneficial ownership (UBO) impact businesses in Kuwait?
WALKER: In January 2023 the Ministry of Commerce and Industry issued Resolution No. 4 of 2023 Regarding the Procedures for the Identification of the Actual Beneficiary. The UBO resolution, which took effect on April 1, 2023, requires Kuwaiti companies to identify and disclose the persons who are the ultimate beneficiaries.
The implementation of the UBO resolution is still in its early stages, and the type of impact that the resolution will have on businesses operating in Kuwait remains to be seen. From an application standpoint, all companies operating in Kuwait will be subject to the UBO resolution, except for those that are owned by the government or regulated by the Capital Markets Authority. This will lead to disclosure and reporting obligations for ultimate beneficiaries for most companies.
The passing of the UBO resolution is certainly a significant development that must be considered from the perspective of companies’ structuring and compliance procedures. However, we will only truly understand the impact of the resolution on business operations in Kuwait once it has been implemented in full.
Where would you like to see further changes to enhance investor confidence in the economy?
WALKER: To boost confidence in Kuwait’s economy among local and foreign investors, it is important that the legal framework in Kuwait keeps pace with international developments and trends. There are many business sectors that are developing rapidly, particularly in respect to data, e-commerce and technology. It is important that there is legislation in place that is comprehensive enough to protect the interests of investors, as well as practical when looking at it from an operational perspective. Continuing to advance new legislation that addresses these developments and trends in a manner consistent with global markets is important in terms of providing reassurance to investors and attracting new investment.
The entry into additional bilateral treaties with foreign countries might also help enhance investors’ confidence in Kuwait’s economy. This is especially the case with respect to litigation. Additional market stability is provided when investors – both local and foreign – know that court decisions are likely to be enforceable on a reciprocal basis if there is any kind of legal dispute.
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