In light of applying the amendments to the Capital Market Law issued by Law no. 17 of 2018, which includes regulating offering of financial instruments in the Egyptian market, determining the meaning of public offering and its provisions, the conditions and controls to be complied with upon issuing any securities or financial instruments through the private placement and setting a definition of what is meant by the public offering and private placement,
Dr. Mohammed Omran - FRA’s Chairman said that the Board of Directors approved at a meeting yesterday the issuance of the controls and procedures to be complied with at the public offering and private placement.
FRA’s Chairman added that the Egyptian capital market is currently witnessing a trend towards increasing the number of companies to be listed on the Stock Exchange, whether through private sector companies’ offerings and the state-owned companies' offerings program, which is expected to add about 35 new companies to the capital market. In this respect, 275 companies will be listed on the Egyptian Stock Exchange, and market capitalization will be increased to 1.6 trillion pounds by the end of 2022 according to FRA’s comprehensive strategy for non-banking financial activities 2018-2022.
FRA’s Chairman stated that FRA’s BOD decision no. (48) of 2019 stipulated that the company wishing to offer its securities shall enter into a contract with the Lead Manager to carry out the process of promoting, covering and executing the subscription. The contract shall specify the mechanism set for determining offering price, either on a fixed price basis or in accordance with the BOOK BUILDING ISSUE; this shall be disclosed in the prospectus of both public offering and private placement. In both cases, subscription requests and tender offers shall be received through ONLINE DISPLAY systems and will be only reviewed by the Authority and the Lead Manager.
He stressed that the Board was keen in its decision to reveal what is meant by qualified investor - closing the door of diligence in determining them - and restricting them in public legal persons from insurance funds , public and private pensions , fund companies , local, Arab, regional and international financial institutions. The decision defined the requirements that shall be met by these legal persons and natural persons who have liquid assets of 5 million EGP and preferably have experience in the field of securities for at least 5 years.
He noted that Leading Manager shall be responsible of verifying, proving and keeping documents to demonstrate the capital adequacy of private placement clients and meeting the definition and specifications included in the prospectus. That is besides checking the availability of a statement that shows if the client is using delivery against payment mechanism, custodian or the bank contracted. Also, he shall define the means and timing of cash payment to the buyers, means and timing of collecting cash for the sellers.
In addition, Lead Manager shall authenticate method of price determination. Also, he shall state any data related to the subscription, any amendments and timings in the register of BOOK BUILDING ISSUE mechanism. He shall determine the final price of the public offering in accordance with means stated in prospectus and send a copy to the Authority immediately after completing offering process.
FRA’s Chairman also confirmed that the decision included a package of obligations on the remaining parties in the offering. The decision obligated the recipient of the orders in the case of the private placement to take care of the concerned man to ensure that the orders that are included suit the client’s capital adequacy and his experience in order to achieve the seriousness of orders and the ability to pay. Subscription requests received by the broker shall be limited in quantity and price. Also, he shall collect sufficient information about the subscribed investors to ensure that they meet the requirements of the qualified investor and ensure that the investor is the final beneficiary of the subscription and independent of the issuing company and any party. In addition, he shall ascertain sources of client’s financing.
On the other hand, the decision prohibits brokerage companies in the case of public offering to grant financing to clients and to register non-covered purchase orders (at the fixed rate of payment) by the client's own resources.
Dr. Omran stated that in the private placement MCDR shall verify the payment of the entire value of purchased shares in parallel with the settlement process.
FRA’s BOD decision no. (48) of 2019 also stipulates the conditions and procedures to be followed at the public offering. As the company wishing to submit the offer is obliged to submit a fair value study if the offering is for the first time or if the company has listed securities but not active in accordance with the rules set by the Stock Exchange and approved by the Authority in this regard. The fair value study is prepared pursuant to Financial valuation Standards issued by FRA’s BOD no. 1 of 2017 and in accordance with the provisions of Article 85 of the Executive Regulations of Law 95 of 1992.
FRA’s Chairman stressed that companies wishing to offer its shares in public offering shall use price stability mechanism following the offering in accordance with a number of controls. This mechanism aims to support the stability of share price in the market for the benefit of the shareholders that is by dealing through the lead Manager.