Prime Minister Issues the Rules for

On 27 September 2018, Prime Ministerial Decree No. 1939 of 2018 was issued with the rules for the valuation of state-owned in-kind contributions in the capital of joint stock and limited liability companies (the “Decree”).[1] The Decree prohibits the transfer or disposal of the asset within the 60-day period during which a committee from the General Authority for Investment & Free Zones (“GAFI”) reviews valuation. It further specifies the public entities from which the Minister of Investment is to choose a public funds representative, and the procedure for that selection. 

Background

In May 2018, the Prime Minister issued decree No. 926 of 2018 with regulations for the government’s offering of state-owned company shares under the new privatization program.[2] The decree set out the objectives of the privatization program, laid out the mechanism for identifying companies that will fall under its scope, and created a ministerial committee to supervise the implementation of the program. It also introduced the notion of “public funds offering advisor”, defined as NI Capital or an investment bank chosen by the Ministry of Finance to administer these offerings. Importantly as well, the decree set the framework for the valuation of shares that will be subject to sale. It specified that the upper and lower price range for listed shares that are actively traded will be within 10% (above or below) the average closing price in the month preceding the announcement of the investment bank that will undertake the offering promotion. As for unlisted and inactive shares, the offering price will be based on the financial advisor’s report that is reviewed and ratified by a special committee.

The New Decree

The new Decree sets out the rules for the valuation of in-kind contributions owned by the State, a public authority, or public-sector company in the capital of a joint stock or limited liability company. It states that the in-kind stake must be wholly owned by the state entity/company with no encumbrances in favour of any third parties. The assessment of value is determined following a field visit by the valuation committee and must be in accordance to market value, while taking into consideration prevailing circumstances at the time of issuing the valuation report. Article (25) of Companies Law No. 159 of 1981 provides the framework for the valuation of in-kind contributions to capital. It states that any valuation of in-kind stakes must be reviewed by GAFI. The assessment is undertaken by a committee formed by GAFI that is headed by a member of a judicial entity and comprising four experts in economics, legal accounting, and technical aspects. The committee follows the rules and standards set out in the executive regulations of the Companies Law, the Egyptian Standards for Real Estate Valuation, and Business Financial Valuation Standards. For state-owned in-kind contributions, a representative of public funds must participate in the valuation. GAFI’s committee must issue its report within 60 days from the date of submission, and the report must be provided to the shareholders and the Central Audit Agency two weeks prior to the meeting that is held to discuss it. The Decree also prohibits the disposal/transfer of an in-kind stake that is subject to valuation or creating any encumbrances thereon within that 60-day period. In addition, the Decree specifies that the public funds representative must be from the Ministry of Finance, or the National Investment Bank and is to be chosen by the Minister of Investment from among lists that are prepared by the two entities, said lists are to each include 10 experts in economic and financial fields. Valuation reports that are prepared by the committee are not to be considered as a deed of ownership and is not enforceable before banks or the judiciary. It also does not create any obligation on the part of GAFI to complete valuation procedures. On reviewing the assessment of the asset presented by the owner, the valuation committee might increase the estimated value for the reasons that it determines and specifies.   [1] Prime Ministerial Decree No. 1939/2018 with the rules for the valuation of in-kind contributions owned by the State, a public authority, or public-sector company in the capital of a joint stock or limited liability company, or to increase said capital, Official Gazette, Issue No. 39 (cont.), 27 September 2018. [2] Prime Ministerial Decree No. 926/2018 with new regulations for the government’s program of offering state-owned company shares or expanding the equity structure in said companies, Official Gazette, Issue No. 19 (bis) (c), 14 May 2018.