• Dr. Omran: FRA’s decision defines companies and entities that may issue short-term bonds
• Dr. Omran: The nominal value of each bond shall not be less than one hundred pounds and its multiples, or its equivalent in foreign currency
• FRA’s decision obliges the Lead Manager to take responsibility for ascertaining the capital adequacy of natural persons who subscribe
• FRA defines financial institutions eligible for investment and high-net-worth individual (HNWI) in subscribing for short-term bonds
In order to enhance the efficiency and depth of the Egyptian Capital Market and allow diversity of non-banking financial instruments in Egypt, and in order to enable each entity to choose the most appropriate financing instrument in accordance with its financial policy, Dr. Mohammed Omran – FRA’s Chairman revealed that FRA’s BOD issued a decision on the procedures and measures set for issuing and offering short-term bonds that include bonds, sukuk , or other short-term securities for a period not exceeding two years.
Dr. Omran emphasized that FRA’s BOD’s decision no. 172 of 2018 defines companies and entities that may issue and offer short-term bonds. The said companies include joint stock companies, shareholding companies, companies licensed by FRA to engage in a non-banking financial activity. In addition to banks under the supervision of the Central Bank of Egypt and subjected to its approval, besides international and regional financial institutions licensed to issue and offer financial debt securities in the Arab Republic of Egypt. Also, entities stated in the decision included the European Bank for Reconstruction and Construction, the International Finance Corporation and other Arab and international institutions, and small and medium-sized companies as defined by listing and delisting rules of the Egyptian Stock Exchange which are issued by FRA or which are defined by the Central Bank of Egypt.
Dr. Omran added that such short-term debt instruments are issued by a decision of the Board of Directors of the Joint Stock Companies or the Supervisory Board based on the offer of the partner or managing partners of the shareholding companies and on a mandate from the company’s General Assembly or by an approval of the competent authority. This shall be for a period not exceeding twelve months for the independent issuances and two years for issuances’ program.
FRA’s Chairman explained that one of the most important conditions that companies or entities wishing to issue short-term bonds shall prepare financial statements for at least two financial years prior to the issuance in accordance with the Egyptian accounting standards. The financial statement shall be accompanied by an auditor’s report prepared in accordance with the Egyptian Auditing Standards and the auditor shall be listed at FRA’s registry.
Also, the companies shall obtain a rating certificate issued by one of the Credit Rating Agencies accredited by the Authority or the guarantor may obtain it if any, provided that the minimum degree is not less than (BBB-) or equivalent , unless the company is exempted from obtaining this Certificate. On the other hand, Grading Certificate for Small and Medium Enterprises shall be submitted at the limit approved by the Authority.
Omran also stressed that the IPO will be managed by one of the entities operating in the field of securities and licensed by the Authority to promote and cover the subscription. Adding that this entity will be responsible for ascertaining the capital adequacy of the natural persons who make the subscription.
On the other hand, FRA’s Chairman noted that Article 5 of the Board’s decision allowed the company or entity to offer short-term bonds for public or private subscription based on an IPO prospectus or an information note in accordance with the form prepared by the Authority. In addition, the same article allowed listing of short-term bonds on the Egyptian Stock Exchange pursuant to listing and delisting rules. Such bonds shall be traded among qualified investors if it is not listed at in the Egyptian Stock Exchange.
In an unprecedented measure taken by FRA to enhance transparency levels – in the current period – and to combat corruption, Article 6 of the Board’s decision reveals that private placement in short-term bonds are limited to qualified investors of financial institutions, namely:
1- Banks under the supervision of the Central Bank of Egypt.
2- Insurance companies.
3. Public legal persons.
4. Insurance funds, pensions and private insurance funds.
5- Investment funds, including debt instruments and money market funds within the limits allowed in accordance with the applicable investment policy of these funds.
6 – Companies defined by the Authority from among companies that engaged in non-banking financial activities under its supervision and control.
High-net-worth individual (HNWI) are natural persons with at least three years of experience in the field of credit, fund management and investment, or fund management at any bank or insurance company or Egyptian or foreign financial institution. In addition to, the natural persons who own securities or financial debt tools with a value of more than five hundred thousand pounds in at least two Egyptian companies other than the issuer and finally companies with a paid-up capital of 1 million EGP.
In its regulatory decision on short-term debt instrument, FRA took into consideration that it shall be issued pursuant to a number of controls. The said controls distinguish between the independent issuance which is in not less than seven days and not more than twelve months and bond issuance program that not exceed a period of two years. Within this period, the company or the entity shall issue different issuances pursuant to the program and in accordance with the general conditions and provisions and other disclosures defined in the program being approved by the Authority, on condition that FRA shall be notified by the conditions of each issuance, the prospectus or the updated information note accompanied by the documents, if any. On the other hand, FRA shall be notified at least two working days before the publication of the prospectus in the case of the IPO or the distribution of the information note to the investors in case of private placement. In addition, the Authority defines that the nominal value of each bond which shall not be less than one hundred pounds and its multiples, or the equivalent thereof in foreign currency.
The rate of return on short-term bonds may be fixed or variable. The Board of Directors of the Joint Stock Companies or the Supervisory Board shall determine- based on the offer of the partner or managing partners of the joint stock companies or the competent authority other than the legal persons- the rate of return and the method of calculating it without being restricted to the limit stated in any other law.