Financial Regulatory Authority

FINANCIAL REGULATORY AUTHORITY

Chairman of the Authority

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Decision of the Board of Directors of the Financial Regulatory Authority

No. (48) of 2019 dated 2019/4/8
Regarding Regulations and Procedures for Public and Private Placements

The Board of Directors of the Financial Regulatory Authority Having reviewed the Joint Stock Companies, Commandite by Shares, Limited Liability Companies, and Single Person Companies Law issued by Law No. (159) of 1981 and its Executive Regulations; Having reviewed the Capital Market Law issued by Law No. (95) of 1992 and the decisions issued in implementation thereof; Having reviewed Law No. (10) of 2009 regulating supervision over markets and non-banking securities; Having reviewed Presidential Decree No. (191) of 2009 on the provisions organizing the management and financial affairs of the Egyptian Exchange; Having reviewed Presidential Decree No. (192) of 2009 issuing the Basic Statute of the Financial Regulatory Authority; Having reviewed the Board of Directors Decision No. (11) of 2014 regarding the rules for listing and delisting securities on the Egyptian Exchange; And having approved the Board of Directors' decision at its session held on 2019/4/8:

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PROVISIONS

(Article One)

The regulations and procedures attached to this Decision shall apply to companies wishing to place their securities in a public or private placement.

(Article Two)

This Decision shall be published in the Egyptian Gazette and on the websites of the Authority and the Egyptian Exchange, and shall take effect from the day following its publication in the Egyptian Gazette.

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Dr. Mohamed Omran
Office of the Chairman
47076

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

Smart Village, Building no. B-136, Giza, Egypt Postal Code: 12577 Tel.: +202 35370036 - Fax.: +202 35345350 info@fra.gov.eg

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Regulations and Procedures for Public and Private Placements

First: Types of Placements:

1- Public Placement

(A) Public Placement for Unlisted Companies (IPO) A public placement for unlisted companies with securities involves offering previously issued or new securities to unspecified natural or legal persons in advance through a placement prospectus.

(B) Public Placement for Listed Companies (FPO) A public placement for listed companies with securities involves offering previously issued or new securities to unspecified natural or legal persons in advance through a placement prospectus.

2- Private Placement (PRIVATE PLACEMENT)

A private placement involves offering previously issued securities to natural or legal persons who are Qualified Investors through a placement prospectus.

3- Public Placement Accompanied by a Private Placement:

A public placement accompanied by a private placement involves offering previously issued securities in two tranches:
The first tranche represents a private placement to raise capital from shares of the placement issued to natural or legal persons who are Qualified Investors through a placement prospectus, and the second tranche is offered through a public placement to unspecified natural or legal persons in advance through a placement prospectus.

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Second: Placement Price

A company wishing to place its securities must enter into a contract with the Placement Manager to execute the marketing and underwriting process, and to execute the subscription. The contract shall specify the mechanism for determining the placement price, and this shall be disclosed in the Authority-approved placement prospectus, using one of the following methods:

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1- Methods for Determining the Placement Price

A- Determining the Placement Price According to the Following Methods:

(A) Fixed Price Issue (FIXED PRICE ISSUE)
In this method, the issuing company and the Placement Manager agree to set a fixed placement price based on a study of the company's fair value.

(B) Book Building Issue (BOOK BUILDING ISSUE) In this method, the issuing company and the Placement Manager agree to use a price discovery mechanism through investor requests at different price levels after the closing of the order reception period (PRICE DISCOVERY THROUGH BOOK BUILDING PROCESS), and subscription orders and purchase offers shall be received through an Authority system (ONLINE DISPLAY), and shall not be accessible except by the Authority and the Placement Manager(s).

2- Price Range

The placement prospectus must include a price range specifying the minimum and maximum placement price.

3- Determining the Final Placement Price

Orders submitted at each price level within the specified price range must be announced through the automated order registration system, and the final placement price must be announced after the closing of the order reception period.

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Third: Qualified Investor for Private Placement

The term "Qualified Investor for Private Placement" refers to persons with financial solvency who meet at least one of the following definitions:

1- Qualified Individual Investor for Private Placement:

An individual who holds assets worth five million Egyptian pounds and preferably has at least five years of experience in the securities field.

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2- Public Legal Entities:

(A) Public insurance and pension funds.
(B) Capital companies with paid-up capital of no less than one million Egyptian pounds.

3- Financial Institutions, meaning:

• Egyptian banks, and branches of foreign banks subject to the supervision of the Central Bank of Egypt.
• Investment banks.
• Securities portfolio formation and management companies.
• Insurance or reinsurance companies.
• Venture capital companies.
• Direct investment companies.
• Real estate financing companies.
• Financial leasing companies.
• Factoring companies.
• Private insurance funds with an investment portfolio exceeding 100 million Egyptian pounds.
• Investment funds.
• Investment funds of Arab, regional, and foreign financial institutions.
• Regional and international financial institutions.

And the following must be met by financial institutions, whichever applies:
(A) The book value of equity for these institutions is less than 20 million Egyptian pounds.
(B) These institutions hold investments in existing securities at the date of placement with a value of no less than 10 million Egyptian pounds in other joint stock companies, excluding the company subject to the placement. (C) The activity of these institutions regarding securities subscription is excluded within the limits of the purposes they are licensed to conduct.

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Fourth: Parties to the Placement Process

1- The issuing company of the securities.
2- The Placement Manager.
3- The Executing Broker.
4- The Legal Advisor.
5- The Collection Bank for Placement Funds.
6- The Depository and Central Registration Company.
7- The Securities Exchange.

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Fifth: Obligations of the Parties to the Placement Process

The placement prospectus must include a declaration and undertaking from the marketing and underwriting company that it is responsible for carrying out the marketing activities for this placement, and that it exercises the care of a prudent person in this regard. It must also clarify whether the company is the Placement Manager only, or the Placement Manager and underwriter/guarantor of the subscription.

The obligations of the placement parties shall be as follows:

(A) Obligations of the Underwriter and Guarantor of the Subscription:

1- Contracting with the issuing company such that the contract includes its obligations, responsibilities, mechanisms, and procedures, and notifying the Authority with a copy of this agreement. 2- Subscribing to the securities that were not covered in the event of its undertaking to underwrite and guarantee the subscription, or otherwise re-offering them in a public or private placement under the same conditions and arrangements stated in the approved prospectus, within a maximum period of three months from the date of approval of that prospectus. 3- Refraining from purchasing shares of the issuing company for which it has provided coverage as long as it remains the owner of the covered shares. 4- Segregating client accounts from its own accounts. 5- Disclosing the placement process and subscription results in accordance with the prevailing rules and procedures. 6- Not providing any false information regarding the placement process and subscription results.

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(B) Obligations of the Placement Manager:

1- Verify, authenticate, and retain supporting records and documents, as follows:

• The financial solvency of private placement clients and their compliance with the definitions and specifications stated in the prospectus.
• The accuracy and completeness of all order data, the nature, and the identity of the person signing the order.
• Evidence that the client is a delivery-versus-payment client, a custodian, or the contracted bank.
• The method and timing of cash payment by subscribing clients.
• The method and timing of cash collection from selling clients.
• A list of persons, companies, and entities notified of the private placement subscription offer.
  2- Document the allocation method and price determination, and verify all data related to the subscription and any amendments and their timing.
  3- In the book building mechanism (BOOK BUILDING) register and determine the final price of the public placement according to the method disclosed in the public placement prospectus, and send a copy to the Authority immediately upon completion of the allocation process. 4- Maintain the confidentiality of coverage ratio data and information regarding the placement during the order reception period, and commit to announcing the placement coverage ratio to clients, and announce to clients only once during the order reception period if the placement reaches 100% coverage. The final coverage ratio shall not be announced until the Authority is notified. 5- Determine the target investor category with the issuing company, and the percentage and method of allocation for individuals and institutions. 6- Disclose any prior agreements made with placement clients before allocation. 7- Disclose any material or new information that would change any data stated in the placement prospectus or enable access to it. 8- Notify the issuing company of all placement rules and any legal and procedural requirements related to the placement.

(C) Obligations of the Placement Broker:

In case of Public Placement:

1- Review the financial solvency of clients, and register orders that meet the paid cash consideration.
2- Review the complete segregation of clients' cash accounts.

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In case of Private Placement:

1- Exercise the care of a prudent person to ensure that the entered orders are commensurate with the client's financial solvency and experience (order seriousness and payment capacity). 2- Ensure that subscription orders received by the placement broker specify quantity, price, or value. 3- Gather sufficient information about subscribing investors to verify their compliance with the requirements for a Qualified Investor, and ensure that the investor is the ultimate beneficiary of the subscription, independent of the issuing company and any related party, and verify the client's funding sources. 4- Retain all placement documents and details of operations executed for clients. 5- Provide an undertaking to exercise the care of a prudent person and comply with all procedures and rules governing private placement. 6- Maintain the confidentiality of placement data and information and not make any public statements regarding placement data and information.

(D) Obligations of the Depository and Central Registration Company:

1- Complete all settlements in the private placement through the Depository and Central Registration Company.
2- Commit in the private placement to the same obligations regarding clearing and settling transactions executed on securities, and settling positions arising from securities trading in the public placement in accordance with prevailing rules, including the provisions of Article (15) of the Depository and Central Registration Law, and specifically commit to the following:
(A) Settling orders executed in the private placement in accordance with the rules and procedures governing the implemented systems.
(B) Verifying the full payment of the value of purchased shares concurrently with settlement.
(C) Notifying the Authority of any settlement breaches.

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(E) Obligations of the Placement Legal Advisor:

1- Disclose in the prospectus the commitments followed to verify the company's compliance, issues, measures, and any important placement terms for prospective investors. 2- Commit to preparing the placement prospectus in accordance with the laws and rules governing it, with supporting documents numbered. 3- Acknowledge the correctness of placement procedures after execution.

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Sixth: Regulations and Procedures for Public Placement

The following regulations apply to public placement:

1- The company wishing to place must meet the conditions and requirements for registering companies and entities wishing to list and place their securities on the Egyptian Exchange in accordance with the rules issued by the Board of Directors of the Authority in this regard, and submit an application to the Authority according to the forms specified by the Authority for this purpose.

2- Shares shall not be offered for public placement in the case of inviting unspecified persons in advance and through a placement prospectus, and the placement prospectus must contain all data related to the placement as stated in Article (85) bis of the Executive Regulations of the Capital Market Law.

3- In the event that listed companies with securities on the Exchange wish to place a portion of their shares for public placement, this shall be done through a specialized placement prospectus accompanied by some key placement documents.

4- The company wishing to place must submit a fair value study if the placement is for the first time or if the placement is a preliminary offering but inactive, in accordance with the rules issued by the Exchange and approved by the Authority in this regard. The fair value study shall be prepared according to the financial valuation standards issued by Board of Directors Decision No. (1) of 2017, under its responsibility and in accordance with the declarations stated in Article (85) bis of the Executive Regulations of the Capital Market Law.

5- If the company wishing to place makes any structural changes or any transactions or acquires company assets or acquires another company before submitting a registration request to the Authority, it must fully disclose all necessary information to investors enabling them to make their investment decision.

6- The placement period shall not be less than five working days.

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Dr. Mohamed Omran
Office of the Chairman
47076