The importance of the regulatory framework for investments in Egypt has been evident since the enactment of the new Investment Law in 2017. Amongst other areas, the regulatory framework for direct investments has been on the Egyptian government’s radar as part of its long-term goal of boosting the economy via encouraging a business-friendly and more efficient investment atmosphere. In this regard, direct investments have assisted in funding several national mega-projects in the past years.
Direct investment companies (“DI Companies”) were first introduced in the Capital Markets Law No. 95 for the year 1992 by virtue of Decree No. 113 for the year 2018. DI Companies are entities undertaking direct investments in the capital of non-listed and listed companies as well as venture capital activities. Since their introduction, DI Companies are heavily regulated by the Financial Regulatory Authority (“FRA”) via the introduction of capital requirements, shareholding and board requirements.
In line with the above, the FRA’s Board of Directors issued a new decree No. 19 for 2022 (the “Decree”) on 23 January 2022, adding new reporting requirements of the financial statements of DI Companies. The Decree was published in the Official Gazette on 13 February 2022 and entered into force starting the day following its date of publication.
We will delve into the key highlights concerning the reporting requirements as follows:
Annual Financial Statements Disclosure
The Decree obliges licensed DI Companies undertaking direct investment activities to disclose to the FRA their annual financial statements alongside the auditor’s report and the board of directors’ report prior to the convocation of their annual general assembly.
In this regard, the deadline of such disclosure to the FRA is a minimum of 21 days prior to the convocation of the general assembly, which must be convened within the three months following the end of each financial year.
Semi-annual Financial Statements Disclosure
In addition to the above, the Decree requires DI Companies to submit to the FRA their semi-annual financial statements alongside a limited examination audit report. Said disclosure must be made to the FRA within a maximum period of 45 days following the end of the said financial period.
Market Reaction
The Decree further evidences the FRA’s increased regulatory oversight on DI Companies and the general investment activities concerning securities in Egypt.
As the case currently stands, the number of DI Companies incorporated and duly licensed in Egypt is very low. Therefore, we await the practical implementation of the Decree and whether the increased reporting obligations will discourage investors from incorporating DI Companies in the future, although we view this to be highly unlikely.
