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GAFI’s New Valuations Regulations

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The General Authority for Investment and Free Zones (“GAFI”) has recently published Decision No. 953 of 2019 (the “Decision”), which is coupled with a manual pertaining to the regulations and procedures of official valuations (the “Manual”). The said Decision was published on GAFI’s website and entered into force and effect on July 1st, 2019.

The Manual specifically regulates and outlines the procedures of valuations of in-kind contributions to capital, as well as assessments of company assets for the purpose of changing their legal forms, mergers, and demergers. This Manual reiterates the articles of the Companies’ Law for each of the four cases outlined above; it then specifies the procedures to be undertaken for each case and the valuation types applicable thereto.

We shall briefly outline the main elements stipulated in the Manual.

Types of Assessments

The Manual stipulates the modalities and types of valuations for each of the in-kind contributions to capital, the change of legal forms of a company, mergers and demergers. The Manual states that companies’ in-kind contributions are assessed based on the market value of the concerned asset(s), whereas valuations made for the purpose of changing the entity’s legal form or demerging, are made based on the book value of the concerned assets. As for valuations pertaining to companies’ assets in cases of mergers, they are generally made based on the assets’ market value, however exceptions may be granted to conduct such assessments based on the assets’ book value, with the application of a different set of regulations thereto.

Initial Assessment Validations and Reexaminations

Companies may file a request before GAFI to issue a validation report for the initial assessments of in-kind contributions, or those of company assets for mergers, demergers or a change of legal form of the company. Such a validation report is valid for six months from the date of its issuance, with the possibility of a three-month extension to be granted by GAFI’s Chairman. Additionally, the report can only be used once, before the relevant department at GAFI, and for the sole purpose for which it was produced.

Further, companies may request from GAFI, for an additional fee, a reexamination of their valuation report within thirty days of the first report’s date of issuance; such reports can be challenged before a special committee appointed therefor at GAFI.

Other Acceptable Valuation Reports

In addition to the valuation reports produced by GAFI, the Manual provides a list of Governmental Entities whose valuation reports are accepted as substitutes to GAFI’s assessment. These entities include the General Authority of Government Services, the Industrial Development Authority, the Supreme Committee for Pricing State-Owned Lands at the Ministry of Agriculture, the New Urban Communities Authority, the General Authority for Tourism Development, and the Accountability State Authority.

Validity rules applicable to GAFI’s reports apply to the valuation reports of such entities as well; and notwithstanding the report’s issuing entity, valuations must always be in compliance with the Egyptian Standards for Real Estate Valuations, as well as the financial valuations standards.

Market Reaction

The Manual is a positive step and provides clarity on the procedures regulating valuation of assets in various scenarios and will ensure greater consistency of application.