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FRA issues requirements for incorporating and licensing Sukuk Companies for the first time in Egypt

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• Dr. Omran: Defining all tasks associated with issuing sukuk in Sukuk Company
• Dr. Omran: Sukuk Company shall conduct adequate due diligence upon determining the assets, benefits, rights or legislations that it owns on behalf of sukuk holders
• Sukuk Companies shall be subjected to the same procedures stipulated in the Capital Market Law and its Executive Regulations if there is a threat to the Capital Market or a threat to the interests of sukuk holders

FRA’s Board of Directors issued a regulatory decision on the requirements set for establishing and licensing Sukuk Companies for the first time in Egypt.  These companies will offer sukuk and use its proceeds in financing the beneficiaries who carry out projects in various fields. The said decision is a procedure to put the amendments to the Executive Regulations of the Capital Market Law – issued at the end of last month – into force.

Dr. Omran – FRA’s Chairman  emphasized  that the  Board’s  decision has obliged companies wishing to be listed at FRA’s  registry  to abide by numbers of incorporation conditions  in a manner consistent with licensing rules and the rules set for ownership of shares of companies engaged in non-banking  financial activities. It is worth mentioning that these rules were issued by FRA as of mid-2018. The most important of which is that the activity of the company is limited to issuing Sukuk and its issued and paid-up capital shall not be less than 10 million EGP or its equivalent in foreign currencies. The company shall include among its founders legal persons of at least 50% of the company’s capital and the percentage of the financial institution shall not be less than 25% of the company’s capital.

In addition, Dr. Omran stressed on the keenness of FRA’s BOD to set a number of standards regarding experience and professional competence to be met by the members of the company’s BOD. He added that the company’s Board member shall have at least three years’ experience in issuing and offering various securities including the Chairman or Chief Executive Officer. On the other hand, the company’s Executive Mangers shall have an experience of not less than two years in shares’ issuance and securities’ offerings.

  Also, he added that the Authority was keen to apply corporate governance rules on Sukuk Companies. He pointed out that the Board member of the licensed company shall not have a direct or indirect benefit from the contracts or projects to which the Sukuk Company is a party.

FRA’s Chairman said that FRA’s BOD decision no. (176)  of 2018 obliged the company to conduct adequate due diligence upon  determining the assets, benefits, rights or projects that it owns on behalf of sukuk holders. In addition, the company shall provide an acknowledgment to prepare ownership contracts for the assets, benefits or projects from the beneficiary- orginator- to Sukuk Company in accordance with the provisions and rules stipulated by the Capital Market Law and its Executive Regulations.

Dr. Omran asserted that Article 6 of the Board’s decision restricted all tasks related to issuing sukuk to Sukuk Companies. The said article stipulated that the company shall own the assets, benefits, rights or financed projects on behalf of sukuk holders and conclude the issuance contract – on which the sakk is issued -. The contract shall regulate the relationship among the company, the beneficiary, the issuer and sukuk holders in terms of investing Sukuk proceeds, duration of investment, expected returns, and method of distribution and duties of those entities, Sukuk maturity, trading and redemption. Besides, the company shall act as an agent for sukuk holders and shall undertake all activities or tasks related to Sukuk and this shall be clearly stipulated in the issuance contract. Moreover, the company shall be responsible for both Sukuk credit rating and the management of assets, benefits, rights or projects all over the issuance period. On the other hand, the company shall ensure the payment of the due returns periodically. In addition, the company shall ensure the quality of the owned assets, benefits, rights or projects in order to be able to manage investment and use them.  That is besides paying and distributing Sukuk proceeds and paying the redemption value upon maturity in accordance with the provisions stated in the Prospectus and any other functions approved by the Authority and stated in the Prospectus or the Information Note.

FRA’s Chairman stressed that these new companies shall be subjected to the administrative measures so that the provisions of Article (30) of the Capital Market Law shall be applied in case of violation of its provisions or its Executive Regulations or FRA’s BOD decisions.  In addition, the provisions of Article (31) shall be applied if there is a threat to the capital market or the interests of sukuk holders or dealers with the company.

It is important to note that Sukuk is the process of issuing equivalent financial certificates representing common shares in the ownership of assets (assets, benefits, rights or projects) that are already exist or be created from the proceeds of subscription pursuant to a contract. Accordingly, this creates a mechanism for dividing the value of assets into equal parts and issuing sukuk that resembles these parts. Finally, Sukuk are liquid instruments and tradable in capital markets.
 

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Regulator Information

Abbreviation: FRA
Jurisdiction: Egypt

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