30 May 2016
RIYADH -- The Saudi Capital Market Authority (CMA) invites investors, interested parties and the public to provide their comments and observations on the 'Rules for Special Purposes Entities' which is made available on CMA's official website and will continue to receive the comments and observations for 60 calendar days. All comments and observations will be studied and considered for the purpose of issuing the final Rules.

The purpose of the Rules is to regulate the establishment, licensing, registration, offering and management of special purposes entities and associated activities in the Kingdom.

According to the Capital Market Law, the Authority shall license the establishment of special purposes entity, and regulate and control its business, uses, issuance of securities, the registration in its registry established by the Authority and the provisions of its articles of incorporation, and regulate the provisions of the registration of funds transferred to it, including documentation of the rights thereof and its legal standing against others, and the issuance of rules governing thereof.

The draft Rules consist of 83 articles and four Annexes aiming to regulate special purposes entities including its licensing, registration, capital, owners and general assemblies, financial rights and liabilities, shareholders rights to participate in decisions and decision-making procedures, share register and other matters.

The Draft also mentioned that a special purposes entity shall satisfy licensing conditions at all times, and it shall not issue securities other than debt instruments that are asset-backed debt instruments, asset-linked recourse debt instruments or debt-based recourse debt instruments and shares for the purpose of financing its capital. Also, the special purposes entity shall not engage in activities other than: the issue of shares to its initial shareholders on establishment; or to shareholders as part of an increase in capital under its By-Laws, the raising of finance through the issue of debt instruments; the investment, management and realization of the proceeds of the issuance of its debt instruments; and ancillary activities necessary to achieve its purpose. And it shall have its registered office in the Kingdom.

As for the capital, the paid-up share capital of a special purposes entity shall be divided into one class of non-divisible shares of equal value.

Contributions by shareholders to the paid-up share capital of the special purposes entity may only be made in cash and not by way of other property, services, or otherwise in kind.

The full nominal value of a special purposes entity's paid-up share capital shall at all times be deposited and maintained in cash with a local bank.

The special purposes entity and each financing transaction undertaken by it, shall be sponsored by a single sponsor, and it may not have multiple sponsors. The sponsor means, in relation to a special purposes entity, the person responsible for sponsoring the special purposes entity in accordance with the Rules for Special Purposes Entities.

The Draft also mentioned that the sponsor shall record and retain sufficient information about its sponsorship to demonstrate compliance with these Rules. This includes records of all financial transactions with or relating to the special purposes entity. Such records shall be maintained for a minimum of ten (10) years. If the special purposes entity has issued, or is to issue, debt-based recourse debt instruments, the sponsor shall be a Saudi joint stock company that complies with all applicable requirements of the Corporate Governance Regulations, Moreover, if the special purposes entity has issued, or is to issue, asset-linked recourse debt instruments or asset-backed debt instruments, the sponsor shall be an authorized person whose permitted business profile covers all securities business activities to be undertaken in connection with the activities of the special purposes entity, a local bank or a finance company.

Also a special purposes entity shall have by-laws that specify the name and registered office of the special purposes entity, the name, registered office and business of the sponsor and shareholder, if different from the sponsor, the purposes, management, operation and ownership of the special purposes entity and any other matters required by the Rules to be specified in the by-laws. In addition, the CMA may prescribe one or more standard forms of by-laws to be adopted by special purposes entities that shall be approved by the CMA.

Moreover, the CMA is working currently on developing the legal framework of investment funds, in which the special purposes entity will be able to issue and offer investment units.

The draft Rules and by-laws can be viewed on CMA official website: www.cma.org.sa/en/News/Pages/CMA_N_2045.aspx

© The Saudi Gazette 2016