Prime Minister Mostafa Madbouly has approved amendments to some provisions of the executive regulations under Egypt’s Capital Market Law No 95 of 1992.
These include a number of changes, most notably in the provisions related to real estate investment funds. The amendments allow for greater flexibility in implementing the investment policies and facilitating the practice of real estate investment activity, whilst also overcoming some problems in operational practices of this type of fund.
Financial Regulatory Authority (FRA) Chairperson Mohamed Omran revealed that the amendments introduced include a definition of the areas of real estate fund investments and overcoming the problem of real estate registration.
Investment in real estate assets that are not subject to legal cases can be raised or issued by a valid allocation decision from a competent state authority.
There are now also facilities to reduce the cost borne by the real estate investment fund, as assets can now be evaluated by a real estate appraisal expert registered with the FRA.
The amendments would also see financing from real estate funds directed to investment in real estate assets owned by real estate fund-related parties. This would occur in accordance with the controls specified by the amendments and would protect the rights of investment securities holders.
The Islamic financing option, sukuk, have also been pushed to the fore under the amendments, to attract more investments for that instrument.
In turn, these developments would allow for the selection of the most appropriate financing formula for each party according to its financial policies. These are represented in the Istisna’a Sukuk, Wakala Sukuk for Investment, Salam Sukuk, Farming Sukuk, and Musaka Sukuk.
Omran said that the amendments to the capital market law’s executive regulations aim to encourage private equity funds in providing finance for projects. With the liquidity on board, venture funds would be enabled to revive stalled projects, and prepare individual projects and companies to transform into joint-stock companies in preparation for listing on the Egyptian Exchange (EGX).
The amendments also stipulate that private equity fund investment managers are allowed to diversify the fund’s investments, and manage the concentration risks in a manner commensurate with the fund’s goal.
They would not be required to adhere to certain concentration ratios, leading to increased investment flexibility at these funds, in a way that achieves the fund’s investment policy instead of setting the bar at 25%.
Omran noted that the amendments touch on some of the provisions governing offers to buy shares as part of acquisitions.
The move comes on the back of an FRA managed community dialogue that looked to simplify and clarify certain controls and procedures needed to implement offers related to acquisitions. These include defining the concept of ownership or indirect acquisition that contributes to determining the respondent to making the purchase offers.
The amendments also clarify how to calculate the price of the share subject to the purchase offer for active shares, and determine the purchase price for inactive shares through a fair value study determined by an independent financial advisor.
Investors are now permitted ownership of more than 75% of the target company’s shares or voting rights, as long as the company owns that percentage resulting from a previous purchase offer, without the need to submit a compulsory purchase offer.
Omran stated that the amendments emphasise the FRA’s authority to allow for the acquisition of a bigger percentage than what is currently included in executive regulations. This requires the submission of a compulsory purchase offer for FRA authorisation, to allow the party making the acquisition to dispose of the shares that exceeded the specified percentage within the deadline set by the authority.
It would also allow the party to take some measures, including freezing the shares subject to abuse, the suspension of voting rights, and the distribution of profits to those shares until they are disposed of or there is a commitment to a purchase offer.