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Some amendments to the Executive Regulations of the Capital Market Law on regulating tender offers and introducing different types of Sukuk


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Dr. Omran: Significant amendments are introduced to the Executive Regulations of the Capital Market Law to regulate tender offers in response to the community dialogue
Dr. Omran: More facilities to activate the role of real estate investment trusts (REITs)
Dr. Omran: Simplifying the provisions set for establishing credit rating companies that classify SMEs bonds

Dr. Mohammed Omran, FRA’s Chairman reveals that Prime Minister issues ministerial decree No. 1760 of 2020 on amending some provisions of the Executive Regulations of the Capital Market Law No. 95 of 1992 , adding that it is the largest amendment to the Executive Regulations since November 2018 . The new amendments include number of changes, most notably in the provisions related to real estate investment trusts (REITs).

The amendments provide more flexibility in implementing the investment policies and facilitating real estate investment activity, whilst also overcoming some problems in operational practices of this type of funds.

Dr.  Omran points out that the amendments define areas of real estate trust’s investments and overcoming the problem of real estate registration.  The said amendments stipulate that investment shall be in real estate assets that are not the subjected to any legal disputes.

Also, the said amendments reduce the costs borne by the real estate investment trust (REITs), as a real estate appraisal expert registered at FRA’s registry can now evaluate assets.  In addition, the amendments allow investment in any real estate assets owned by real estate fund-related parties in accordance with certain controls to protect the rights of certificates’ holders.

Moreover, the new amendments introduce different types of sukuk  so as to increase its attractiveness.  Also, it provides the chance to choose the most appropriate financing tool for each party according to its financial policies. Dr. Omran points out that within the framework of promoting sukuk issuance , the new amendments introduce new  issuances  approved by Al-Azhar Al-Sharif  namely ,  Istisna’a Sukuk, Wakala Sukuk for Investment, Salam Sukuk, Farming Sukuk, and Musakah  Sukuk.

Dr. Omran adds that the new amendments   aim at encouraging private equity funds to provide finance for projects, in a manner that enables venture funds to revive stalled projects and prepare individual projects and companies to transform into joint-stock companies and to be listed at the Egyptian Exchange. Also, the amendments stipulate that private equity fund’s investment managers are allowed to diversify the fund’s investments and manage the concentration risks in a manner commensurate with the fund’s goal. In this respect, more flexibility will be achieved in investment process instead of setting an amount of 25% of the net assets of the company.

Private equity fund is a closed-end fund that invest either by purchasing listed or unlisted securities. It is allowed to be engaged in venture capital and its certificates can be offered and listed at the Exchange.

On the other hand, Dr. Omran points out that the said amendments allow providing financing for SMEs through issuing bonds. The said amendments reduce the capital of companies engaged in the credit ratings of these bonds.

Also, FRA’s Chairman notes that the amendments include some provisions governing tender offers in response to the community dialogue held by FRA and attended by related parties . He adds that the new amendments aim at providing more flexibility and setting some controls and measures needed upon implementing tender offers. The amendments include the definition of ownership and indirect acquisition where it will easily determine those who will submit tender offers. Also, it clarifies how to calculate the price of active and inactive shares to be purchased that’s through a fair value study prepared by an independent financial consultant registered at FRA’s registry.

Moreover, the said amendments allow the ownership of more than 75% of the shares or voting rights of the targeted company as long as this percentage is resulted from a previous tender offer and without the need to submit a mandatory tender offer.

According to Dr. Omran , the amendments stipulate  that FRA has the right to reject the tender offer and request some amendments  in certain cases stated in the Executive Regulations so as to protect minority rights . On the other hand, the amendments specify the cases that do not stick to submitting mandatory tender offers in response to the community dialogue.

Dr. Omran emphasizes that the amendments stress on granting FRA the authority to allow those who exceed the acquisition percentage stated in the Executive Regulations to trade in shares that exceeded the set percentage within the deadline defined by FRA. Also, in this case, they have the right to take certain measures like freezing these shares, suspending voting rights and profit distributions or submitting tender offer.

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Regulator Information

Abbreviation: FRA
Jurisdiction: Egypt

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