Amendments to the Executive Regulat

The long-awaited amendments to the Executive Regulations of the Capital Market Law (the “Law”) have been finally passed by Prime Ministerial Decree No. 2479 of 2018 (“Decree 2479/2018”),[1] reflecting and complementing the amendment to the Capital Market Law itself pursuant to Law No. 17 of 2018.[2] Given that Decree 2479/2018 reflects one of the largest amendments since the issuance of the original Law in 1992, this issue of the Egypt Legal Update will address the general changes that the 78-page Decree made. These are as follows:

Sukuks

In terms of sukuks, whose regulations were amended in the law, Decree 2479/2018 mandates the following main regulations:

• The role of sukuk-issuing companies in issuing this type of bonds (i.e., sukuks) and acting as an agent for sukuk owners/investors.

• The requirements for licensing the sukuk-issuing companies.

• The conditions for issuing sukuks that are convertible to shares.

• The conditions of issuing sukuks that could be described as “compliant with sharia.”

• The procedures of offering sukuks in a public or private offering and the definitions of high net worth investors and financial institutions eligible for private offerings.

• The required documents and information to offer sukuks.

• Details of the information that must be available in the prospectus or the information memorandum, depending on whether the offering is public or private.

• Disclosure requirements on the sukuk-issuing companies.

Sukuks- and Bonds-Owners Association

Decree 2479/2018 reorganizes the regulations on sukuks- and bonds-owners associations, which represent the interests of those investing in these securities, to clarify and elaborate on the following:

• The formation of more than one bonds-owners association in the case of issuing different tranches of bonds.

• The regulations on the selection, powers, and removal of the association’s representative.

• The regulations preventing conflict of interest when it comes to the association’s representative and his/her duties.

• The reorganization of the procedures to convene and take decisions during the association’s meetings.

Futures Contracts Markets

Following the provisions in the latest amendment to the Law, the amended Executive Regulations includes detailed provisions on futures contracts markets, such as:

• The conditions and procedures for licensing the general establishment of private exchanges.

• The stipulation that licenses for the establishment of futures contracts markets in particular must follow the regulations that the Financial Regulatory Authority’s (“FRA”) board of directors will issue while maintaining that the Egyptian Stock Exchange has the right to establish this kind of specialized markets.

• The regulations on the activity of brokers in futures contracts.

• The conditions and procedures for terminating the activity of the futures markets, both voluntarily and compulsorily.

Tender Offers

As for tender offers, which constitute one of the most important and complicated chapters of the Law, Decree 2479/2018 replaces all the previous provisions on the matter with newer regulations with the purpose of protecting the rights of minority shareholders in companies listed on the Egyptian Stock Exchange by preventing the majority shareholders from acquiring substantial control without giving the opportunity to minority shareholders to participate in the tender under the same conditions and prices. The following are the main tenets of the new regulation of tender offers:

• A tender offer is any offer, mandatory or voluntary, to acquire the shares, convertible bonds, or foreign certificates of deposit in either a company listed in the Egyptian Exchange or a company that has offered its shares in a public offering.

• The offer of purchase could be in cash and/or in exchange of other securities.

• A mandatory tender offer is one where the buyer seeks to acquire at least a third of the company capital through shares or a third of its voting rights. In such a case, the purchaser must offer to acquire all the company’s shares. In contrast, a voluntary tender offer includes lower percentages of shares or voting rights and thus, the offer does not oblige purchasing all shares.

• The definition of related parties whose combined purchases are considered as an offer from one person.

• Detailed rules on the confidentiality of the tender offers and its disclosure to the public.

• The requirement that the acquisition of at least 5% of the company’s shares must be disclosed within two days of acquisition. However, if the acquisition is made by the company’s employees or board members, a disclosure should be made of any acquisition above 3%. As for acquisitions above 25% but that do not fall under mandatory tender offers (for not having reached the one-third shares or voting rights formula), disclosure must include additional information regarding the buyer’s plans for the company and its management.

• The regulations on applying for a tender offer at the FRA and the procedures related to the approval or rejection of such an application and its publication and execution.

• The regulations on preparing the fair value of the shares being acquired and the role of the independent financial advisor and the company in this regard.

• The FRA’s obligation to decide on the applications for mandatory tender offers within two days of the application’s submission.

• The offer must be valid for a period not less than ten days (or 20 days in the case of acquisition from board members or majority shareholders) and not more than 30 days.

• The regulations on amending or withdrawing tender offers during the validity period.

• The regulations on disclosing competing tender offers during the validity period of the original tender offer.

• New regulations aimed at protecting minority rights in companies that are subject to tender offers, especially obligations towards different announcements/disclosures.

Conclusion

Decree 2479/2018 is one of the largest and most important amendments to the Executive Regulations of the Capital Market Law. The new amendments explain and provide greater details for subject matters that have been sufficiently defined in the previous rules, thus benefitting the market, investors, and participants by offering greater clarity. More time, however, is needed to assess their practical effects.   [1] Prime Ministerial Decree No. 2479/2018 amending certain provisions of the Executive Regulations of the Capital Market Law issued by virtue of Minister of Economy and Foreign Trade Decision No. 135/1993, Official Gazette, Issue No. 47 (cont.) (b), 22 November 2018. [2] Law No. 17/2018 amending certain provisions of the Capital Market Law No. 95/1992, Official Gazette, Issue No. 10 (bis) (h), 14 March 2018.