Financial Regulatory Authority

FINANCIAL REGULATORY AUTHORITY

Chairman of the Authority

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Decision No. 173 of 2018 dated 22/11/2018

Regarding the Rules and Procedures for Issuing and Offering Short-Term Bonds

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The Board of Directors of the Financial Regulatory Authority

Having reviewed the Joint Stock Companies, Partnerships Limited by Shares, Limited Liability Companies, and Single-Owner Companies Law No. 159 of 1981 and its Executive Regulations;

And the Capital Market Law No. 95 of 1992 and its Executive Regulations;

And Law No. 93 of 2000 issuing the Central Depository and Registry of Securities Law and its Executive Regulations;

And Presidential Decree No. 191 of 2009 on the Rules Governing the Management and Financial Affairs of the Egyptian Exchange;

And Presidential Decree No. 197 of 2009 issuing the Basic Statute of the Financial Regulatory Authority;

And Board of Directors Decision No. 11 of 2014 regarding the rules for listing and delisting securities on the Egyptian Exchange;

And Board of Directors Decision No. 55 of 2018 regarding publication standards and methods for companies that offered securities in a public offering or have securities listed on the Egyptian Exchange;

And upon the approval of the Board of Directors in its meeting held on 22/11/2018;

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Has Decided

(Article One)

The provisions of this Decision shall apply to companies and other legal entities wishing to issue and offer bonds, financing certificates, or other short-term securities with a maturity not exceeding two years.

Short-term bonds shall be considered short-term debt instruments issued by decision of the board of directors of joint stock companies or the supervisory board based on a proposal from the managing partner(s) in partnerships limited by shares (based on authorization from the general assembly), or with the approval of the competent authority in other legal entities, for a period not exceeding ten months for independent issuances and two years for an issuance program, and short-term debt instruments shall be issued as a type of security in accordance with the rules and procedures set forth in this Decision.

The term "short-term bonds" as used in this Decision also refers to bonds, financing certificates, or other short-term securities with a maturity not exceeding two years (short-term debt instruments).

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(Article Two)

Companies and other entities covered in this Article may issue and offer short-term bonds as follows:

1. Joint stock companies and partnerships limited by shares.

2. Companies licensed by the Authority to conduct one of the non-Egyptian financial activities, subject to the Authority's approval.

3. Banks subject to the supervision and regulation of the Central Bank of Egypt, subject to their approval thereof.

4. Egyptian regional and international financial institutions authorized to issue and offer Egyptian debt securities in the Arab Republic of Egypt or guarantee the obligations of the issuer of these securities under bilateral or international agreements in which the Arab Republic of Egypt is a party, including the European Bank for Reconstruction and Development, the International Finance Corporation, and other international institutions.

5. Small and medium-sized enterprises (SMEs) according to the definition provided in the Authority's rules for listing and delisting securities on the Egyptian Exchange or the definition issued by the Central Bank of Egypt.

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(Article Three)

Companies and entities covered in Article Two of this Decision, when wishing to issue short-term bonds, must comply with the following conditions:

1. The board of directors of joint stock companies or the supervisory board based on a proposal from the managing partner(s) in partnerships limited by shares (based on authorization from the general assembly) must issue a decision approving the conditions and terms of the issuance, or obtain approval from the competent authority in other legal entities.

2. Companies must prepare financial statements for at least the two financial years preceding the issuance, certified according to Egyptian Accounting Standards, accompanied by an auditor's report prepared according to Egyptian Auditing Standards by one of the auditors registered with the Authority.

3. Obtain a credit rating (Rating) certificate issued by one of the credit rating agencies approved by the Authority, or obtain a rating if available, provided that the rating is not less than (BBB-) or its equivalent, unless one of the exemption cases from obtaining this certificate is met as outlined in this Decision.

A credit grading (Grading) certificate for small and medium-sized enterprises shall be submitted at a level not less than that approved by the Authority.

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(Article Four)

The following controls shall apply to the issuance of short-term bonds:

1. The issuance shall be independent or based on a program. The term of an independent issuance shall not be less than seven days and shall not exceed eighteen months. If the issuance is based on a program, its term shall not exceed two years.

The issuing company or entity may, during the two-year period specified for the program, approve multiple issuances under the program, in accordance with the general conditions and other disclosures specified in the program and previously approved by the Authority, provided that the Authority is notified of the conditions of each issuance and the public offering prospectus or updated information memorandum, accompanied by supporting documents for updates if available, at least two working days prior to publishing the prospectus in the case of a public offering or distributing the information memorandum to investors in the case of a private offering.

Issuances shall be carried out during the specified program period while observing the following:

(a) The total amount of issuances at any time shall not exceed the maximum limit previously approved by the Authority for the program.

(b) The maturity date for all issuances under the program shall not exceed the validity period of the program.

(c) There shall be no violations of the conditions and terms of previous issuances.

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(Article Five)

The company or entity may offer short-term bonds for public or private subscription based on a prospectus or information memorandum according to the model prepared by the Authority for that purpose.

Short-term bonds may be listed on the Egyptian Exchange in accordance with the rules for listing and delisting securities on the Egyptian Exchange, provided that trading of these bonds shall be limited to qualified investors when listed on the Egyptian Exchange.

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(Article Six)

Private subscription in short-term bonds shall be limited to qualified investors for investment, which are qualified financial institutions. For the purpose of applying the provisions of this Decision, "qualified financial institutions" refers to the following:

First: Qualified Financial Institutions:

1. Banks subject to the supervision and regulation of the Central Bank of Egypt.

2. Insurance companies.

3. Public legal entities.

4. Pension and insurance funds and private insurance funds.

5. Investment funds, including debt money funds and money market funds, within the limits permitted according to the prevailing rules regarding the investment policy of such funds.

6. Companies designated by the Authority among those conducting one of the non-banking financial activities under its supervision and regulation.

Second: Financially Sound Persons:

1. Natural persons with less than three years of experience in the field of credit, money management, and investment, or fund management, working at any Egyptian or foreign bank, insurance company, or financial institution.

2. Natural persons owning securities or financial debt instruments exceeding five hundred thousand Egyptian pounds in at least two joint stock companies other than the issuing entity.

3. Companies with paid-up capital of not less than one million Egyptian pounds.

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(Article Seven)

The issuing company or entity shall submit an application to the Authority to obtain its approval for offering short-term bonds via a private method, accompanied by the information memorandum for the offering. The information memorandum may be issued in English, provided that a comprehensive Arabic summary is attached.

The application and information memorandum must be accompanied by the following documents:

1. A recent extract from the commercial register of the company wishing to offer, not exceeding three months prior to the date of submitting the application.

2. A copy of the preliminary contract and the company's articles of association according to the latest amendment. For regional and international financial institutions and other entities, a certified copy of their establishment documents shall be submitted.

3. A copy of the financial statements of the company wishing to offer according to Egyptian Accounting Standards for the last two financial years, certified by them, accompanied by an auditor's report from those registered in the Authority's register and prepared according to Egyptian Auditing Standards.

4. A certified copy of the minutes of the board of directors meeting of joint stock companies or the supervisory board in the case of a partnership limited by shares, approving the issuance and its conditions, as well as a certified copy of the minutes of the general assembly of the issuing company approving the delegation of the board of directors to issue. For regional and international financial institutions and other entities, a copy of the approval from their competent authority on the issuance shall be submitted.

5. The auditor's report on the proposed issuance, issuance expenses, and net working capital.

6. A credit rating (Rating) certificate issued by one of the credit rating agencies approved by the Authority for the issuer or guarantor, provided that the rating is not less than (BBB-), or a credit grading (Grading) certificate from one of the entities licensed by the Authority at a level not less than that approved by the Authority, for small and medium-sized enterprises.

7. Documents related to the guarantees provided, if any.

8. Issuance expenses and how they are calculated.

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(Article Eight)

The Authority shall issue its decision regarding the public offering prospectus or information memorandum within five working days from the date of submitting the prospectus or memorandum, provided it is complete with the required data and documents.

If the issuing company or entity does not offer the short-term bonds for subscription within five days from the date of obtaining approval, the approval shall be considered void, and the company or entity must obtain new approval from the Authority.

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(Article Nine)

Companies and other issuing entities are exempt from the requirement to obtain a credit rating certificate in the following cases:

1. If the issuer is one of the banks subject to the supervision and regulation of the Central Bank of Egypt, and with its approval.

2. If the issuer is one of the regional or international financial institutions that has a credit rating.

3. If the issuer has a credit rating that has been valid for at least one year for an independent issuance or the first year of an issuance program.

4. If the issuer's obligations are guaranteed by a local or international financial institution that has a credit rating or a company holding a valid credit rating certificate for one year or exempt from the credit rating requirement.

5. If the issuer has issued short-term bonds on behalf of another entity holding a valid credit rating certificate for one year or exempt from the credit rating requirement.

In all cases, it is required that the credit rating or credit grading certificate be renewed, as applicable, if the age of the short-term bond issuance exceeds the validity period of the credit rating certificate.

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(Article Ten)

Without prejudice to any disclosure obligations that the issuing company or entity must comply with according to the provisions of Capital Market Law No. 95 of 1992, the issuing company or entity must, during the issuance period, comply with the provisions of Board of Directors Decision No. 55 of 2018 regarding publication standards and methods for companies that offered securities in a public offering or have securities listed on the Egyptian Exchange, concerning the publication of annual and periodic financial statements and the disclosure of material events.

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(Article Eleven)

In matters not specifically addressed in this Decision, the provisions of the Capital Market Law issued by Law No. 95 of 1992 and its Executive Regulations shall apply.

(Article Twelve)

This Decision shall be published in the Egyptian Gazette and on the Authority's website, and shall take effect from the day following its publication in the Egyptian Gazette.

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Chairman of the Board of Directors

Dr. Mohamed Omran

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Financial Regulatory Authority
Office of the Chairman

Smart Village, Building no. B-136, Giza
Postal Code: 12577
Tel.: (00202) 35345350 - Fax.: (00202) 35370036 info@fra.gov.eg

Smart Village, Building no. B-136, Giza
Postal Code: 12577
Tel.: (00202) 35345350 - Fax.: (00202) 35370036 www.FRA.gov.eg