EFSA Amends Listing & Delisting Rul

The Egyptian Financial Supervisory Authority (“EFSA”) has recently issued a decision amending the Listing and Delisting Rules of Securities on the Egyptian Stock Exchange (the “Decision”).[1] The amendment pertains to Small and Medium Enterprise (“SME”) listing conditions, modifies a consequence of non-compliance with the rules of continued listing of securities, and provides more stringent procedures for delisting. The Decision comes into effect one day following its publication in the Egyptian Gazette, i.e. on 13 August 2017.

Background

Listing and Delisting Rules are a key regulatory instrument which significantly affects companies that operate in the field of capital markets. They set out the conditions and requirements for listing, continuation of listing and delisting of securities on the Egyptian Stock Exchange. While many rules pertaining to capital market operations are directly issued by the Egyptian Stock Exchange, rules of listing and delisting in particular are issued by EFSA’s Board of Directors in accordance with Article (16) of Capital Markets Law 95 of 1992.

The Amendment

On 12 August 2017, the Egyptian Gazette published EFSA Decision No. 96 of 2017 amending the Listing and Delisting Rules issued by EFSA Decision No. 11 of 2014. The amendments pertain to the retention condition for SME listing, the grace period for complying with conditions for continued listing, and the timeline and procedures of delisting of securities on the Stock Exchange.

• SME Listing Conditions: Retention of Shares

Article (9) of the Listing and Delisting rules sets out the conditions for listing the shares of small and medium enterprises, including (inter alia) that the percentage of offered shares does not exceed 20% of total company shares, that the shareholders are not less than 100, that free floating shares are not less than 10%, and that the number of issued shares to be listed is not less than 100 thousand. Clause (8) of Article (9) states that small and medium enterprises wishing to list must provide undertakings that the main shareholders will retain no less than 51% of their shares in the company’s capital, amounting to at least 25% of the total shares that are to be listed. In the event that half of the shares owned by the main shareholders is less than 25%, the percentage should be completed from shares owned by board members and company founders. The clause requires that said percentages are retained for at least two years from the date of listing, while the 25% must be retained for a third year. The amendment adds that retained shares may be transferred in full or in part – upon obtaining EFSA’s approval – if the buyer is a bank, an insurance company, a direct investment fund, an entity that is specialized in investment, or a company with previous experience and “distinguished” work in the company’s field. That is given that the acquirer undertakes to fulfil the retention condition to end of the retention period.

• Continuation of Listing: Modification of Grace Period to Comply

Article (10) of the Listing and Delisting Rules sets out the conditions for shares to continue to be listed on the stock exchange. Namely, the company must continue to satisfy the following listing conditions: (i) the minimum threshold of number of shareholders, (ii) the minimum threshold for free floating shares, and (iii) the minimum threshold for number of shares that are requested to be listed. The amended Article used to give a grace period of three months for companies that do not satisfy one of these conditions at any given point of time, during which the company can rectify its position and continue to be listed. The amendment however, now automatically subjects companies which do not satisfy the conditions for continuation of listing to delisting according to Chapter (6) of the Listing and Delisting Rules.

• Delisting Procedures

Moving on to Chapter (6) which contains the delisting rules, the new Decision contained an amendment of Article (53), and added Article (53) bis comprising the rules for mandatory delisting of companies that fall short of fulfilling the conditions for continued listing. It states that where a company becomes non-compliant with one of the following conditions of listing and continued listing – (i) percentage of offered shares, (ii) percentage of free floating shares, (iii) number of shareholders, (iv) number of listed shares - the Egyptian Stock Exchange (“EGX”) must notify said company within a month at the latest from the date of non-compliance. The company must then - within two months from the date of being notified – provide the EGX with a time-plan to be implemented within 6 months at the latest, including that the company undertakes to rectify its standing with respect to the unfulfilled condition(s). Companies that fail to provide a time-plan, or fail to comply within the given times will be referred to the Exchange’s Listing Committee which could issue a decision of suspension of trade of securities, and the delisting of the company’s shares within one month from being notified. Companies will be notified by EGX of the Committee’s decision by way of registered certified mail. Delisted companies are obliged to acquire free floating shares, in their fair market value, if an owner so wishes to sell; or guarantee that third persons will do the purchase. Such sale must be concluded within one month of the company’s being informed of the Committee’s decision to suspend trade. Moreover, in that event a mortgagee of any of the company’s free-floating shares will be allowed to sell the mortgaged shares in accordance under the same conditions for the sale of free floating shares.   [1] EFSA Board of Directors’ Decision No. 96/2017 amending its Decision No. 11/2014 on the Listing & Delisting Rules of Securities on the Egyptian Stock Exchange, Egyptian Gazette, Issue No. 182, 12 August 2017.