Authorizing Venture Capital Compani

The Financial Regulatory Authority (“FRA”) issued a decision allowing venture capital companies to finance leasing contracts.[1] Venture capital is one of the activities authorized under Capital Market Law No. 95 of 1992, and it includes different types of investments in new companies, company restructuring, and in financing activities in general. Companies undertaking venture capital must be licensed by the FRA and are subject to FRA’s supervision, just as any other company that operates in the field of securities is. Financial leasing on the other hand is a financing vehicle that allows investors to rent tools, equipment, real estate, and other assets required to carry out investment activities, whereby the financial leasing company buys the assets and leases them out. The recent decision authorizes venture capital companies to finance this activity through offering financing to the company undertaking financial leasing, which in turn acquires assets and makes them available for lease by the investor (the lessee). The decision requires that said financing takes the form of a three-party contract between the venture capital company, the financial leasing company, and the lessee. This is on the condition that the financial leasing company remains in charge of collecting payments from the lessee and paying the venture capital company from those proceeds. The new decision thus creates an alternative financing source – other than banks – for financial leasing companies. It is unclear however, whether this would be deemed part of the company’s overall financing when considering the minimum debt to capital ratio.   [1] FRA Board of Directors Decision No. 80/2018 allowing venture capital companies to finance leasing contracts, Egyptian Gazette, Issue No. 136 (cont.) (a), 13 June 2018.