Aggregated News From Investment Management Regulators

The Egyptian economy awaits the first issuance of sukuk, either by the originator or by the SPV issuer

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• Dr. Omran: Sukuk is ready for application  and we are waiting for the first issuance  contract to specify rights and obligations
• Dr. Omran: 50 million pounds or the equivalent of foreign currencies is a minimum total value of the Sukuk to be issued by joint stock companies ,banks , public bodies or public legal persons
• Dr. Omran: Allowing joint-stock companies to issue sukuk by themselves in private placement only
• Dr. Omran: The same rules and procedures set for trading on unlisted securities and proving their transfer of ownership  shall be applied to unlisted sukuk

Dr. Mohammed Omran- FRA’s Chairman asserted that FRA has finished the regulatory and procedural framework related to sukuk issuance. He added that FRA  issued all necessary executive decisions to activate the sukuk issuance mechanism in a manner that allows the Egyptian economy to receive the issuance of the new financing instrument as soon as possible. In its last meeting, FRA’s BOD allowed the issuer to issue sukuk and set several conditions to be met them. These conditions stated that the  issuer shall obtain the approval of the Central Shari’a Supervisory Committee for sukuk issuance, and taking into account that each issuance will be evaluated separately if the issuer issued more than one issuance.  In addition, an independent party approved by the Authority shall be assigned to carry out the main tasks of sukuk issuance and follow-up issuance until maturity date and that party shall pay great attention to preserve the rights sukuk holders.

FRA’s Chairman stressed that if the sukuk is listed at the Stock Exchange, then a quarterly disclosure report shall be submitted by the issuer’s BOD showing the most important indicators in the  sukuk project compared to the future plan according to the prospectus and any significant events affecting the process.

FRA’s Chairman emphasized that FRA’s BOD decision no. (50) of 2019 stipulated that the independent party shall conclude a contract with the issuer. The contract shall clarify the rights and obligations of the parties and the minimum follow-up tasks by the issuer to distribute the Sukuk proceeds and the redemption value of the Sukuk by the dates stated in the prospectus. That is besides inviting the sukuk owners’ group to meet whenever necessary or at the written request of the sukuk holders whose sukuk nominal value not be less than 10% of the total nominal value of the issuance.

The independent party shall attend meetings of the sukuk owners’ group, and monitoring any excess, default or conduct that violates the terms, conditions of the prospectus, and inform the sukuk owners’ group. In addition, he shall submit a report to the Authority accompanied by an auditor’s report ensuring the availability of the accounting system and the documentary course to manage sukuk issuance process.

Dr. Omran emphasized that the Authority was keen to oblige the parties to the contract – both the originator and the independent party – to immediately disclose any significant event that would affect the cash flows of the asset or the proceeds due to the sukuk holders.  The issuer shall determine the assets associated with the Sukuk issuance where the issuance contract shall include  an item which indicates that such assets are set solely for sukuk issuance. Parties to that contractual relationship may not dispose of such assets through sale, foreclosure, and transfer of ownership or in any other form of disposition.

Dr. Omran added that if the originator is one of the public bodies or legal entities, then the project accounts shall be supervised by the Central Auditing Organization, in addition to an auditor from among the auditors listed at FRA’s registry and chosen by the Ministry of Finance. If the issuance of sukuk is held through SPV issuer then, the company’s capital shall be wholly owned by the public sector banks, public sector companies, public business sector or other public legal persons.

On the other hand, joint-stock companies are allowed to issue sukuk alone in private placement cases only and by stipulating that their founders should be public bodies or banks and the contribution of these entities shall not be less than half of the companies’ capital.

Dr. Omran said that the Authority was keen to determine the total value of the Sukuk to be issued by joint-stock companies subject to the provisions of the Capital Market Law, the Law of Joint Stock Companies, the Limited Liability Companies and the One Person Companies promulgated by Law No. 159 of 1981, and banks listed at the Central Bank of Egypt and public bodies and public legal persons. The total value of sukuk issuances shall not be less than (50) million pounds or the equivalent in a foreign currency convertible. He added that the maximum limit for each issuance shall not exceed the limit required to finance the project or activity taking into account the nature of the project. All this shall be held in accordance with the feasibility study included in the prospectus and pursuant to the credit rating which shall not be less than the level decided by FRA’s BOD in this regard.

Regarding sukuk to be issued by international and regional financial institutions, its total value shall not be less than (100) million Egyptian pounds or the equivalent of foreign currencies.

FRA’s Chairman affirmed that the international and regional financial institutions wishing to issue sukuk in the Arab Republic of Egypt in local currency or in foreign currency convertible shall meet a number of requirements. The most important of these requirements are obtaining the approval of the Board of Directors of the Central Bank of Egypt accompanied by the approval of the competent authority of the international or regional institution. In addition, the institution shall submit a statement that clarifies its good performance upon issuing previous sukuk, in particular that there is no breach in fulfilling the value of sukuk.  That is besides obtaining a credit rating of the sukuk that is to be issued by a credit rating entity approved the Authority, the classification shall not be less than the level determined by FRA’s BOD.

These international and regional institutions should also follow the procedures set for issuing and offering the sukuk that are stated in the Capital Market Law Regulations and the issuance shall be held in accordance with a prospectus containing data on the issuer’s objectives, general strategy, capital and sukuk issuances or Shariah-compliant financial instruments. Financial institutions shall set a precise “Use of Proceeds” statement , the identification of the entity to which the sukuk assets are transferred, the entity that will manage and invest the sukuk assets, and sources of cash flows to meet the obligations of the issuer towards the sukuk owners.
International and regional financial institutions issuing sukuk may – after FRA’s approval – establish a fund to meet risks of investment in sukuk. The fund shall be financed by a percentage not exceeding 5% of the issuance nominal value. On the other hand, the prospectus shall specify the share of the sukuk holders in the net yield and rules for distributing its proceeds upon liquidation.

Dr. Omran asserted that FRA was keen that the regulatory framework of the Sukuk  shall include trading determents  and specify the terms and conditions of listing sukuk at one of the stock exchanges in Egypt by making an amendment to the text of Article 12 of listing and delisting rules . He added that the new amendment allowed listing of sukuk  issued by   joint stock companies, Egyptian legal persons and other entities after being approved by the Shari’a sub-Committee and the Central Shari’a Supervisory Committee. Also, sukuk shall be offered for public or private subscription in accordance with  a subscription prospectus or memorandum of information approved by the Authority, regardless the law which the issuer is subjected to. Also, the issuer shall provide the Authority and the Stock Exchange with an annual credit rating certificate within ninety days of the end of the fiscal year. The issuer shall disclose the significant events upon submitting the new credit rating certificate within 15 days of the date of disclosure. Also, the issuer shall submit  a statement that clarify the formation of sukuk owners’ group or bondholders group that is approved by the competent administrative authority and the first minutes of meeting of this group and identifying its legal representative. Moreover, the issuer shall submit to the Stock Exchange and the Authority a statement of returns due to bondholders or sukuk holders.

In order to prove the transfer of ownership of the unlisted sukuk, FRA’s Board decision stated that the same rules and procedures set for trading and transfer the ownership of unlisted securities shall be applied pursuant to FRA’s BOD decision no.  94 of 2018.
 

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Regulator Information

Abbreviation: FRA
Jurisdiction: Egypt

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