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New Set of Reforms to the Capital Markets Law and its Executive Regulations

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Amendments to the Capital Markets Law No. 95 for 1992 (the “CM Law”) and its Executive Regulations issued by Decree No. 135 for 1993 (the “CMLER”) have been introduced allowing for technology solutions to facilitate general shareholders’ meetings, introducing securitization of future cash flows, and ownership requirements for listed securities in specific regions in the Sinai Peninsula.

On 14 and 24 March 2022, Law No. 13 for 2022 amending the Capital Markets Law and Prime Ministerial Decree No. 1109 for 2022 amending the CMLER were enacted (collectively, the “Amendments”).

The Amendments not only formally introduce an obligation to make available electronic means for shareholders to attend and vote in general meetings, but they also provide a new financing tool to facilitate the increasing developments and projects being established in Egypt. The Financial Regulatory Authority (“FRA) is taking active steps to rejuvenate the Egyptian financial market sector whilst adding new financing tools to assist with funding public and private entities and respond to the increased demand in funding.

We guide you through the key highlights of the Amendments as follows:

New Obligation on Listed Entities to hold General Meetings Online

The Amendments introduce an obligation on listed entities to provide electronic systems that allow shareholders to attend and vote in general meetings online. Failure to do so will subject said entities to a fine ranging between EGP 20,000 to EGP 100,000. Listed entities have been afforded 6 months to comply with this obligation or, alternatively, must do so prior to the convocation of the next general meeting, whichever is further.

The Amendments also provide that the rules, conditions and procedures governing the same shall be issued by virtue of a decision by the Board of Directors of the FRA.

Introduction of Securitization Bonds for Future Cash Flows

The Amendments additionally introduce the possibility for brokerage companies to undertake the securitization of future cash flows for public and private legal persons via the issuance of tradable bonds. This new financial tool has been created with the objective of increasing investments.

The Amendments further outline the conditions according to which the bonds may be issued. In this regard, future cash flows must: (i) be for the benefit of a public or private legal person; (ii) not be restricted or conditioned; and (iii) be free of any current or future third-party rights.

The Amendments further outline that the securitization wallet of future flow receivables is created based on a certified declaration with the auditor’s report including the current net value of the wallet and its valuation, its rates of change or irregular fulfillment of its payments and additional guarantees, if any. The Amendments grant the bond holders exclusive rights on the securitization wallet. This aims to provide additional guarantees to investors.

A decision of the FRA’s Board of Directors is expected to be enacted to provide the regulatory framework for the issuance of said bonds.

New Ownership Requirements on Listed Securities in Sinai

A new section to Chapter 12 of the CMLER has been added which regulates the ownership of listed securities in companies operating in the regions of Sharm el Sheikh, Dahab and the Aqaba Bay in the Sinai Peninsula (the “Sinai Region”).

In this regard, the Amendments require Egyptians wishing to acquire any capital or voting rights, whether directly or indirectly, individually or through their related parties, of listed securities which will result in the ownership of 10% or its multiples, to obtain the approval of: (i) the FRA; (ii) the Ministry of Defense; (iii) the Ministry of Interior; and (iv) the General Intelligence Agency.

With regards to non-Egyptians, the Decree provides the abovementioned approval requirement in cases where non-Egyptians wish to acquire, directly or indirectly, individually or though their related parties, 5% or its multiples of the capital or voting rights of listed companies operating in the Sinai Region.

It is important to note that foreign individuals or entities are restricted from acquiring capital or voting rights in listed companies operating in the Sinai Region if the said entities are wholly owned by Egyptians and have land or property in the Sinai Region.

In addition to the above, a disclosure obligation is triggered in cases of a direct or indirect acquisition, either individually or through related parties, of 3% or its multiples either through a single or multiple transactions. A disclosure of the transaction(s) must be made to the FRA and the Egyptian Stock Exchange within the day following the execution of the acquisition.

Market Reaction

With regards to the securitization of future cash flows, the FRA’s Chairman, Dr. Mohamed Omran, stressed that the amendments adopted would help in responding to the increasing demand on funding within the Egyptian market.

Additionally, Mr. Ahmed Samir, the Chairman of the Parliament’s Economic Affairs Committee stated that the amendments seek “to create new non-banking funding tools which can be used to contribute to fund projects aimed to improve the performance of public utilities and services”.