The Egyptian Financial Supervisory Authority (EFSA) has issued a decision to make an exception to the law governing corporate acquisitions in the Egyptian Exchange (EGX) to rectify the legal status of the Egyptian government’s reacquisition of union workers’ shares in several general holding companies.
The EFSA decision exempts the government holding companies from being required to submit a compulsory tender to acquire 100% of the shares of the acquired companies.
The basic rule in the bylaws of the Capital Market Law stipulates that in case a company acquires 33% of the shares or voting rights of a listed company, the acquirer has to provide a compulsory tender offer to buy the remaining shares of the company.
The tender offer is mandatory only for the acquirer, while the shareholders in the company only have the right to either accept the offer or reject it.
The EFSA has granted two exceptions to bypass the compulsory offer. In the first, the tender offer can be bypassed pursuant on the approval of all shareholders to sell any amount of the company’s capital.
EFSA Chairperson Sherif Samy said that the latter case is not new to the bylaws, as the amendments made aimed to ass new exceptions to the existing one.
The Holding Company for Land Reclamation reacquired workers union’s shares in three governmental land reform companies registered in the stock exchange: the General Company for Land Reclamation (GCLR), Wadi Kom Ombo Land Reclamation (WKOL), and the El Arabia Company for Land Reclamation S.A.E. (EALR).
The General Company for Research and Ground Water (REGWA) also reacquired the workers union’s shares over a year ago. The union held between 89% and 90% of shares in the company. However, the government did not issue a tender offer for the entire stock in accordance with the executive regulations of the capital market. Thus, the transaction was frozen until the EFSA’s decision.
Samy said that exempting governmental holding companies from submitting compulsory purchase offers to acquire all workers unions’ shares of companies listed on the EGX is a step forward on the path to restructuring governmental companies, especially land reclamation companies.
He explained that a reconsideration of restructuring land reclamation and reform companies was necessary in the 1990s. These companies were privatised through the transfer of ownership to workers, in the form of shareholding workers unions. However, some unions were unable to repay the purchase value or failed to manage these companies. Thus, the government has now had to reacquire the companies and restructure their ownership structures
Samy added that the new exemption rules aim to ease the burden on the government throughout the restructuring process, where the government will not be obliged to buy the shares owned by other contributors in the governmental companies being restructured.
The General Holding Company for Land Reclamation was established in 2012 by a decree issued by former prime minister Kamal Al-Ganzoury with the aim of acquiring six companies working in the field of agriculture. The decision followed protests by workers demanding returning the companies to the government after the decline in the business’s volume and the accumulation of debts, taxes and insurance.
The six companies include GCLE, WKOL, EALR, and the Egyptian Real Estate Company for Land Reclamation, Behera Joint Stock Company, and REGWA.
A source at the Arab Company for Land Reclamation, who spoke on condition of anonymity, said that GCLR has resumed negotiations with the company to acquire the workers union’s shares which amount to 89.66% of the company.
He explained that no agreement has been reached as the workers union insists on carrying out the acquisition based on the Capital Market Law, which provides for the appointment of an independent financial advisor to determine a fair share value.
The source added that the holding company wants to acquire the shares based on the nominal value of EGP 5 and pay for acquisitions when enough liquidity is available.
The source pointed out that the exception rules issued by the Egyptian Financial Supervisory Authority (EFSA) rectifies the legal status of the transfer of ownership of workers union to the shareholders of GCLR and WKOL to the holding company, where the acquisition has already been carried out without providing a tender offer to buy the rest of the shares of both companies.
The report examines the disclosures of the public company and those of WKOL for the period that ended on 31 March 2016.
Vice Chairman and CEO of Prime Holding Investment Bank Mohamed Maher called on the EFSA to reconsider the rules governing the terms of the provision of a compulsory purchase offer because they have damaged the EGX.
He explained that these rules have led to writing off a number of companies in the fields of cement, education, food industries and communications, such as Vodafone, as a result of shareholders’ response to the compulsory offer. The offerreduced the market capitalisation of the EGX and some of the companies listed on it.
Maher suggested a new system to provide compulsory purchase offers that relies on a rising ownership percentage gradient when acquiring any shares of any company listed on the EGX.