Board of Directors' Secretariat

Capital Market Authority Board Resolution No. (22) of 2016

Dated 28/2/2016

Regarding the Regulations for Issuing Bonds Secured by an Independent Portfolio of Financial Rights

The Board of Directors of the General Authority for Financial Supervision, Having reviewed:

• The Law on Joint Stock Companies, Companies Limited by Shares, and Limited Liability Companies issued by Law No. (159) of 1981;
• The Capital Market Law issued by Law No. (95) of 1992 and its Executive Regulations and decisions issued pursuant to them;
• The Law on Central Deposit and Registration of Securities issued by Law No. (93) of 2000 and its Executive Regulations;
• Law No. (10) of 2009 regarding the regulation of supervision over markets and non-banking financial instruments;
• Law No. (115) of 2015 issuing the law regulating movable guarantees;
• Presidential Decision No. (192) of 2009 issuing the Basic Statute of the General Authority for Financial Supervision;
• Board of Directors Resolution No. (51) of 2014 regarding the conditions required in the founders of an investment fund company;
• And having the approval of the Board of Directors in its session held on 28/2/2016; Decided

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(Article One)

Definition of Issued Bonds

The term "Issued Bonds" refers to bonds issued by joint-stock companies in exchange for and secured by an independent portfolio of their financial rights, in addition to other guarantees.

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(Article Two)

Companies Permitted to Issue Issued Bonds

Joint-stock companies, other than securitization companies, may be licensed by the Authority to issue issued bonds secured by an independent financial portfolio from their financial rights, observing the rules and procedures set out in Item Third of Article (7) of the Executive Regulations of the Capital Market Law No. (95) of 1992, except for rules related to their issuance by legal entities that do not take the form of a joint-stock company.

The provisions of the Fourth Branch of the First Chapter of the First Part of the aforementioned Executive Regulations must also be observed.

All of the above is without prejudice to the provisions of Article (41) bis (6) of Law No. 95 of 1992.

The public offering prospectus or information memorandum, as applicable, must include disclosure regarding the priority order of bondholders' rights regarding the additional guarantees provided to them.

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(Article Three)

Additional Guarantees for Issued Bonds Other Than the Independent Financial Portfolio

The additional guarantees determined for the repayment of the value and yield of issued bonds, other than the independent portfolio of financial rights, must meet the following requirements:

1. Real Estate Assets:

a. The following conditions must be met by real estate assets taken as additional guarantees for bondholders:

• These assets must be registered in the Real Estate Registry, or a valid allocation decision must have been issued by one of the competent authorities in the State, provided that the allocation conditions allow for their mortgage or transfer of ownership.
• The mortgage must be endorsed by the competent authority.
• These assets must not be the subject of dispute or litigation.

b. These assets must be valued by two valuation experts whose names are registered in the Real Estate Valuation Experts List maintained by the Authority. In case of discrepancy in valuation, the average value stated in the two reports shall be considered.

The guarantee must be registered on the real estate assets in favor of the bondholders at one of the Real Estate Registry offices, given that the property is registered, specifying the priority rank.

2. Movable Assets:

The following conditions must be met by movable assets taken as additional guarantees for bondholders:

a. These assets must be among those that can be publicized in the Movable Guarantees Register in accordance with the provisions of Law No. 115 of 2015 regulating movable guarantees.

b. The guarantee on these assets must be publicized in the Movable Guarantees Register in favor of the bondholders immediately upon subscription coverage for the bonds, and the publicity may not be removed before the satisfaction of bondholders' rights or within the limits of the existing bond rights.

Movable assets may include securities listed on the Egyptian Exchange or other government securities, provided that the mortgage of the securities taken as guarantees is endorsed in favor of the bondholders at the company licensed for central deposit activities.

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(Article Four)

Conditions Required in Companies Issuing Issued Bonds

The following conditions must be met by joint-stock companies permitted to issue issued bonds in exchange for an independent portfolio of financial rights separate from the rest of the company's assets:

1. The company must have issued financial statements for a full year prior to submitting the bond issuance request.

2. The company must be licensed to grant financing repayable in installments, or be a company that sells movable assets in installments, or be a company whose activity relies on the existence of a portfolio of financial rights corresponding to rents arising from implementing partnership contracts with government entities, or an independent portfolio of financial rights held by public and private legal entities corresponding to rents arising from their activity. This includes companies engaged in one or more of the following activities: (real estate financing, refinancing, real estate investment and development, leasing, financing, installment car sales).

The Authority may approve other companies that possess an independent portfolio of financial rights.

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(Article Five)

Requirements for the Independent Rights Portfolio and Additional Guarantees

The following conditions must be met by the independent rights portfolio and additional guarantees of companies wishing to issue issued bonds:

1. The value of the company's independent financial rights portfolio must not be less than (20) million Egyptian pounds, provided that it results from the company's engagement in one or more activities, or future cash flows are added to it under Item (2) of Article Seven.

2. The company's independent financial rights portfolio must be due and undisputed.

3. The assets provided as additional guarantees may not be disposed of by sale or mortgage to anyone other than the bondholders throughout the duration of the issued bonds until they are paid off and the due yield is settled. However, the prospectus or information memorandum may allow for the release of a portion of the guarantees within the limits of the bond value and yields already paid.

4. The company is committed to increasing the value of the independent financial rights portfolio and additional guarantees by at least 20% over the total value of the issued bonds and their yields. The company is also committed to preserving bondholders' rights on the portfolio and additional guarantees at the aforementioned percentage until the full settlement of the bond value and yields (considering any paid bond yields) or the bond value in case of partial redemption.

5. The company is committed to providing an irrevocable undertaking to provide additional guarantees if the aforementioned value falls below the due portion of the bonds and their yields until full settlement.

6. The bond-issuing company is committed to preparing financial statements in accordance with Egyptian Accounting Standards, and the company's auditor must be among the auditors registered with the Authority's register throughout the period specified for the bonds. The auditor is committed to performing their duties according to Egyptian auditing standards and must include in their report the extent of the company's compliance with the requirements for issuing issued bonds.

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(Article Six)

Credit Rating Requirements to be Observed

Bond-issuing companies must comply with the following credit rating requirements:

1. The credit rating must be obtained from one of the entities licensed by the Authority or listed by the Authority.

2. According to Board of Directors Resolution No. 71 of 2009, the credit rating for the issue (Rating for Issue), considering the independent financial rights portfolio and additional guarantees, must not be lower than Investment Grade.

3. The credit rating certificate must be submitted directly by the issuing entity to the Authority.

4. The credit rating must be updated within one month from the end of each financial year of the issue during the validity period of the issued bonds.

5. The information memorandum must include a summary of the credit rating report. A comprehensive summary of the credit rating report must also be published along with the public offering prospectus at least fifteen days prior to the start of subscription collection, as well as within fifteen days of the issuance of the credit rating certificate. Publication must occur in two widely circulated daily newspapers.

Special attention must be paid when preparing the credit rating to the nature of the activity generating cash flows for the independent financial rights portfolio, such as those arising from residential or commercial real estate financing, or financial rights arising from rents paid by government entities in partnership projects, and other activities generating cash flows mentioned in Item (2) of Article Four.

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(Article Seven)

Procedures for Issuing Issued Bonds

Companies wishing to issue issued bonds must submit a bond issuance request accompanied by the following:

1. The public offering prospectus or information memorandum.

2. The agreement concluded between the company and the custodian.

3. Additional guarantee agreements.

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(Article Eight)

Data Required in the Prospectus or Information Memorandum

The prospectus for issued bonds or the information memorandum must include, in addition to the data prescribed in the Executive Regulations of the Capital Market Law regarding bond issuance, the following:

1. The name, address, and paid-up capital value of the bond-issuing company, the underwriting and marketing company for the securities (if agreed upon), and the custodian responsible for monitoring operations related to bondholders' rights.

2. A summary of the assignment agreement, which must include at least the value of the independent financial rights portfolio and the documents evidencing these rights, the additional guarantees, their diversity in terms of value, repayment terms, and geographic distribution, default rates corresponding to these rights, the average portfolio maturity, and valuation bases.

3. The size of the bond issuance for the portfolio, the yield rate, the maturity date, and other main issuance conditions.

4. The credit rating of the issued bonds in accordance with the requirements mentioned in Article Four.

5. The risks that bondholders may bear and cases of enforcement on additional guarantees.

6. Identification of the entity responsible for underwriting or guaranteeing the issued bonds, if any.

7. Identification of the entity responsible for collecting amounts due for local rights, and the duties and obligations incumbent upon that entity.

8. Dates for paying bondholders' dues, commissions, and allowances deducted from the proceeds of local rights, and the dates of deduction, as well as rules for disposing of the surplus of the independent financial rights portfolio upon full settlement of the bonds and their yields.

9. A declaration from the company's legal advisor confirming that the independent financial rights portfolio is its property, the assignment agreement, and that there are no lawsuits or disputes affecting the ownership of the portfolio and its right to dispose of it. It must also declare that the assignment agreement was prepared in accordance with the provisions of the Capital Market Law and its Executive Regulations, and that the assignment is effective, final, unconditional, and transfers all local rights and guarantees, unless it is stated that it will become effective and final only upon full subscription coverage for the bonds.

The aforementioned data must be endorsed, accompanied by the company's auditor's report and the company's legal advisor's report.

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(Article Nine)

Final Assignment of the Independent Rights Portfolio

The assignment of the independent financial rights portfolio in favor of bondholders becomes final immediately upon subscription coverage for the bonds, in accordance with the assignment model prepared by the Authority for this purpose, and after obtaining its approval for the bond issuance or the expiration of the period during which the Authority may object to the issuance, as applicable.

The assignor is committed to including in the prospectus or information memorandum, as applicable, a summary of the final assignment agreement, which must include at least the data issued in the model from the Authority.

In case it is agreed that the assignment will not be effective and final except after full subscription coverage for the bonds, and this coverage is not completed by the closing date of the subscription, the entity covering the subscription must notify the Authority on the next working day at the latest and return the amounts paid for the subscription within a period not exceeding three days from that date.

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(Article Ten)

Documents to be Deposited with the Custodian

The bond-issuing company is committed to depositing the following with the custodian within three days from the date of subscription coverage:

1. An original copy of the agreement between the issuing company or the party agreed upon to collect the rights, which must include the instruction to transfer the proceeds to the custodian immediately upon collection.

2. The agreements creating the local rights.

3. The documents evidencing the local rights, including guarantees and insurance.

4. All documents related to additional guarantees, including those indicating their mortgage registration in favor of bondholders.

5. A declaration authorizing the custodian to deliver to the entity responsible for collecting local rights the necessary documents to enable them to perform the collection.

6. An original copy of the prospectus or information memorandum for the issued bonds.

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(Article Eleven)

Duties and Obligations of the Custodian

The custodian is not permitted to use the proceeds arising from the independent financial rights portfolio for anything other than the settlement of dues for the issued bonds, after deducting the prescribed commissions, allowances, and fees, and not exceeding what was specified in the prospectus or information memorandum, as applicable.

The custodian must notify the assignor and the entities guaranteeing payment, if any, immediately upon the occurrence of any event that may obstruct or invalidate their dues in the scheduled times.

The custodian, after obtaining the approval of the legal representative of the group of bondholders, may invest surplus amounts deposited with them in treasury bills or deposits at banks registered with the Central Bank of Egypt. They may also entrust this to one of the securities portfolio management companies, provided that the prospectus or information memorandum for the issued bonds allows for this.