EFSA Issues Two Decisions Regarding

  The Egyptian Financial Supervisory Authority (“EFSA”) issued two decisions, the first regarding the amendment of the listing rules to regulate the trading of preemptive rights to subscribe in the capital increase of joint stock companies and partnerships limited by shares with shares listed on the stock exchange[1] and the second regarding the regulation of the trading of such preemptive rights for companies that had issued shares in public offering but are not listed on the stock exchange.[2] Both decisions were issued following the Ministry of Investment decision adopted last October amending the executive regulations of the Capital Market Law[3] according to which the trading of preemptive rights to subscribe in cash capital increase has become mandatory for companies unless the general shareholders meeting of the company decides to suspend preemptive rights at the time of a particular capital increase. Background The Capital Market Law No. 95 of 1992 provides in Article 16 that EFSA’s board shall issue the rules and conditions governing the listing and delisting of securities on the stock exchange. That being said, decisions have been issued by the Capital Market Authority (EFSA’s predecessor) followed by decisions by EFSA in this respect. The most recent one was Decision No. 11 of 2014 approved by EFSA’s board on January 22, 2014, which in turn was amended numerous times and finally by the decision referred to above regulating the trading of preemptive rights to subscribe in capital increases of joint stock companies and partnerships limited by shares with shares listed on the stock exchange. The Provisions of the Decisions The decisions referred to above provide the rules and procedures for the trading of preemptive rights to subscribe in cash capital increases of joint stock companies and partnerships limited by shares. The decision amending the listing rules provides such regulations for companies with listed shares as well as the requirements for notices, newspaper advertisements and their timings and the timings of opening of the trading period for preemptive rights. According to the amended listing rules, companies must make semi-annual disclosures on the details of the use of the capital increase proceeds. As for the second decision regarding the trading of preemptive rights for companies that had offered shares to the public but are not listed, it provides very similar yet more elaborate rules compared to the first decision. Procedures set out in both decisions are quite similar with the main difference being that the preemptive rights in the case of listed shares are registered with the stock exchange whereas in the case of companies that offered shares to the public but are not listed such rights are registered with the central depository company. The central depository company holds a register with the owners of preemptive rights and registers such rights as a separate issue during the subscription period. It carries out the netting and settlement of traded preemptive rights and notifies banks receiving capital increase subscriptions of the names of preemptive rights owners and the number of rights each of them owns. Conclusion The decisions provide for elaborate procedures for the trading of preemptive rights to subscribe in capital increases. It is up to the stock exchange and the central depository company to enforce said mechanisms efficiently to achieve the level of liquidity aimed for by the introduction of this system to the Egyptian capital market. [1] EFSA's Board of Directors Decision No. 138/2016 amending Decision No. 11/2014 on the listing and delisting of securities on the Egyptian Stock Exchange, Official Gazette, Issue No. 283, 17 December 2016. [2] EFSA's Board of Directors Decision No. 137/2016 on the regulation of preemptive rights to subscribe to capital increase shares of joint stock companies and partnerships limited by shares that had offered shares in public offering and are not listed on the stock exchange, Official Gazette, Issue No. 284, 18 December 2016. [3] Ministry of Investment Decision No. 95/2016 amending certain provisions of the Executive Regulations of the Capital Market Law issued by Minister of Economy and Foreign Trade Decision No. 135/1993, Official Gazette, Issue No. 251, 8 November 2016.