Financial Regulatory Authority

FINANCIAL REGULATORY AUTHORITY

Chairman of the Authority

Board of Directors Resolution No. (50) of 2019 dated 8/4/2019 Regarding the Regulation of Certain Provisions Related to Sukuk

Board of Directors of the Financial Regulatory Authority

Having reviewed the Capital Market Law issued by Law No. (95) of 1992 and its Executive Regulations; And Law No. (10) of 2009 regulating the supervision of non-banking financial markets and instruments; And Presidential Decree No. (192) of 2009 regarding the Basic Statute of the Financial Regulatory Authority; And Board Resolution No. (11) of 2014 regarding rules for listing and delisting securities on the Egyptian Exchange; And Board Resolution No. (94) of 2018 regarding rules and procedures for trading securities not listed on the Egyptian Exchange and transfer of ownership procedures; And Board Resolution No. (176) of 2018 regarding requirements for establishing and licensing rating agencies; And Board Resolution No. (42) of 2019 regarding controls and membership requirements for Sharia Supervisory Committees for Sukuk issuances compliant with Islamic Sharia; And the Authority's Board approval in its session held on 8/4/2019;

Has Decided

First: Conditions and Controls Regarding the Beneficiary Entity Issuing Sukuk Independently

(Article One)

Beneficiary entities may issue Sukuk independently upon meeting the following conditions:

1- Approval from the Central Sharia Supervisory Committee for the issuance, with each issuance evaluated separately if the beneficiary entity issues more than one Sukuk issuance.

2- The issuance shall be managed by an independent party approved by the Authority, responsible for the main tasks of issuing Sukuk and monitoring the issuance until maturity, exercising the diligence of a prudent person regarding Sukuk holders' rights.

And the independent party shall conclude an annual agreement with the beneficiary entity regarding the rights and obligations of each, with its duties including at least the following:

(a) Monitoring the issuer's distribution of Sukuk returns and repayment of Sukuk principal values on the dates specified in the offering circular.

(b) Convening the Sukuk Holders' Group for meetings whenever necessary or upon written request from holders representing at least 10% of the total nominal value of the issuance.

(d) Monitoring any deviation, negligence, or action violating the offering circular terms or Islamic Sharia provisions, and reporting such to the Sukuk Holders' Group.

(e) Submitting a report to the Authority accompanied by an audit report from a registered auditor regarding the adequacy of the accounting system and the independent audit cycle for the rating process corresponding to rating operations.

(f) Determining the payment agent for the beneficiary entity.

3- The project financed by the Sukuk must be a separate legal entity financially independent from the issuing entity, with the entity liable for project obligations only up to its capital contribution.

4- The beneficiary entity must submit its future plan during the Sukuk tenure, including strategic objectives, growth opportunities, and additional social benefits the project will achieve.

5- Submission of a quarterly disclosure report by the beneficiary entity's board of directors if the Sukuk are listed on an exchange, highlighting key project indicators compared to the future plan per the offering circular, and any material events affecting the rating process.

In all cases, the competent authority's approval decision for the issuance may grant shareholders preemptive rights to subscribe to the Sukuk.

(Article Two)

Both the beneficiary entity and the independent party shall be committed to the following:

1- Preparing annual and periodic financial statements for both parties, certified by the competent authority and approved according to Egyptian accounting standards, accompanied by an audit report certified per Egyptian auditing standards.

2- Issuing periodic reports to both the Authority and the Sukuk Holders' Group disclosing the quality of the underlying assets.

3- Renewing the credit rating of the asset or asset portfolio by one of the credit rating agencies approved by the Authority.

4- Immediate disclosure of any material event likely to affect the asset's cash flows or returns due to Sukuk holders.

5- The beneficiary entity shall designate assets linked to the Sukuk issuance, with a clause in the issuance contract ensuring these assets are exclusively for the Sukuk issuance, prohibiting their disposal via sale, mortgage, transfer of ownership, or any other form by the entity or any party to that contractual relationship.

(Article Three)

Without prejudice to the provisions of this Resolution, if the beneficiary entity is a public authority or public juridical person, the Central Auditing Organization shall supervise the project's accounts, in addition to an auditor from those registered with the Authority chosen by the Ministry of Finance.

And without prejudice to the requirements of Board Resolution No. (176) of 2018 regarding rating agency establishment and licensing requirements, if public authorities or juridical persons issue Sukuk through a rating company, the rating company's capital must be wholly owned by public sector banks, public sector companies, public business sector entities, or other public juridical persons.

(Article Four)

Without prejudice to the provisions of this Resolution, joint stock companies may issue Sukuk independently only in private placements, provided that public authorities or banks are among their founders, and their contribution to the company's capital is not less than half.

Second: Determination of Minimum and Maximum Limits for the Value of Sukuk Issued by Authorized Entities

(Article Five)

The total value of Sukuk issued by joint stock companies subject to Capital Market Law or Joint Stock Companies and Limited Partnerships with Shares and Single-Person Companies Law No. (159) of 1981, whose bylaws permit it, must not be less than (50) million Egyptian pounds or its equivalent in foreign currencies.

The maximum issuance limit for all Sukuk from these companies must not exceed the amount necessary to finance the project or activity, considering the project's nature, according to a feasibility study included in the offering circular, consistent with a credit rating that must not be lower than the level determined by the Authority's Board.

(Article Six)

The total value of Sukuk issued by banks registered with the Central Bank of Egypt must not be less than (50) million pounds or its equivalent in foreign currencies, with the maximum issuance limit not exceeding the amount necessary to finance the project or activity, considering the project's nature, according to a feasibility study included in the offering circular, consistent with a credit rating that must not be lower than the level determined by the Authority's Board.

In all cases, the Central Bank of Egypt's approval is required for the maximum permitted Sukuk issuance limit.

(Article Seven)

The total value of Sukuk issuances by public authorities and public juridical persons must not be less than (50) million pounds or its equivalent in foreign currencies, with the maximum issuance limit not exceeding the amount necessary to finance the project or activity, considering the project's nature, according to a feasibility study included in the offering circular, consistent with a credit rating that must not be lower than the level determined by the Authority's Board, while adhering to the maximum limit approved by the Cabinet based on the Finance Minister's proposal.

(Article Eight)

The total value of all Sukuk issued by international and regional organizations must not be less than (100) million Egyptian pounds or its equivalent in foreign currencies, and must not exceed the institution's average issuance of debt instruments in the five years preceding the issuance request.

Third: Conditions and Procedures to be Followed for Approving the Issuance of Sukuk by International and Regional Financing Institutions

(Article Nine)

International and regional institutions wishing to issue Sukuk in the Arab Republic of Egypt in local or foreign currency for financing must meet the following conditions, as follows:

1- Obtain approval from the Central Bank of Egypt's Board, accompanied by approval from the competent authority of the international or regional institution.

2- The international or regional financial institution must have previously issued Sukuk or debt instruments.

3- The described project must generate returns, according to a feasibility study prepared for this purpose, including a sufficient project description, identification of construction, development, and management costs, components, implementation phases per subscription, potential risks, hedging methods, and guarantees according to Sharia-compliant controls approved by the Central Sharia Supervisory Committee.

4- The described project must be independent from other projects of the issuing entity.

5- The described project must be financially and accountingly independent.

6- The institution must provide evidence of satisfactory performance of previous Sukuk issuances, specifically confirming no default in fulfilling the value of these Sukuk.

7- The institution must obtain a credit rating for the intended Sukuk issuance from a credit rating agency registered with the Authority, with the rating not lower than the level determined by the Authority's Board.

8- The offering circular must be accompanied by a report from an auditor registered in the Authority's registry or from the international/regional institution's auditor, provided they meet the same conditions for registering auditors with the Authority.

(Article Ten)

International and regional institutions wishing to issue Sukuk in the Arab Republic of Egypt must follow the issuance and offering procedures stipulated in Article (16) of the Executive Regulations of the Capital Market Law.

And without prejudice to the provisions of the Executive Regulations of the Capital Market Law, the offering circular for Sukuk issued by international or regional financing institutions must include the following data:

1- General information about the issuer's objectives, general strategies, capital, previous Sukuk or Sharia-compliant financial instrument issuances, main shareholders, headquarters address, establishment date, and names and addresses of auditors.

2- Summary of the decision issued by the competent authority approving the Sukuk issuance process.

3- Economic and social feasibility of the issuance objective.

4- Precise description of how the issuance proceeds will be used.

5- Details regarding whether the Sukuk are convertible into shares, and procedures and conditions for conversion.

6- Cash flow sources for fulfilling the institution's obligations to Sukuk holders if the Sukuk are secured by assets and economic systems, as well as details regarding asset sale, assignment, or any other rights of the institution in these assets, and the nature of the assets.

7- Summary of terms and conditions of any contracts, agreements, guarantees, or bank guarantees related to the underlying assets, including asset/maturity dates, book value, and actual value.

8- Identification of the entity to which Sukuk asset ownership is transferred and the entity responsible for managing and investing Sukuk assets, specifying the remuneration equivalent to these assets, their investment, and available profit distribution.

9- Disclosure if the institution has Sukuk listed on a foreign financial market supervised by a regulatory body similar to the Authority – stating the foreign market name and any material events disclosed after depositing the last offering circular with that market.

(Article Eleven)

International and regional institutions issuing Sukuk may, with the Authority's approval, establish a fund to mitigate investment risks in the issued project, funded at a rate not exceeding 5% of the issuance's nominal value during the Sukuk tenure. The offering circular shall specify the Sukuk holders' share of net returns, distribution methods, and liquidation proceeds distribution rules to Sukuk holders.

Fourth: Conditions and Rules for Listing Sukuk Offered Privately on One of the Egyptian Securities Exchanges and Controls for Trading Sukuk Outside Securities Exchanges.

(Article Twelve)

The following text is derived from Article (12) of the Rules for Listing and Delisting Securities on the Egyptian Exchange issued by Board Resolution No. (11) of 2014:

Conditions for listing Sukuk and financing Sukuk issued by joint stock companies, Egyptian juridical persons, and other entities.

The following conditions must be met for listing Sukuk, bonds, and financing Sukuk:

(a) They must have been offered to the public or privately based on an offering circular, prospectus, or information memorandum approved by the Authority, regardless of the law governing the issuing entity.

(b) Submission of a certificate indicating the credit rating granted to the issuance.

1- Commitment by the issuer to provide the Authority and Exchange with a recent credit rating certificate for the issuance within 90 days of the fiscal year-end, renewed annually.

2- Commitment to immediately disclose material events to the Authority and Exchange, and submit a new credit rating certificate within 15 days of disclosure.

3- Evidence of forming the Sukuk Holders' Group, bondholders, or financing Sukuk holders as applicable, certified by the competent administrative authority of the issuer with the first meeting minutes and its legal representative, and commitment to provide the Exchange and Authority with a statement of returns due to bond/Sukuk holders and amounts paid at least fifteen days prior to distribution.

Without prejudice to the previous conditions, listing Sukuk requires approval from the Sub-Sharia Supervisory Committee and ratification by the Central Sharia Supervisory Committee.

In all cases, all documents and papers submitted for listing must be approved by the competent authority of the juridical person.

(Article Thirteen)

The provisions of Board Resolution No. (94) of 2018 regarding rules and procedures for trading securities not listed on the Egyptian Exchange and transfer of ownership procedures shall apply to the trading and proof of transfer of ownership of Sukuk not listed on securities exchanges.

(Article Fourteen)

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

Chairman of the Board of Directors
Dr. Mohamed Omran

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

Smart Village, Building 136 - B, Giza, Egypt
Postal Code: 12577
Tel.: +202 35345350 - Fax.: +202 35370036 info@fra.gov.eg

FRA Board of Directors Resolution No. 50 of 2019 Regarding the Regulation of Certain Provisions Related to Sukuk

Financial Regulatory Authority