Effective the 10th November 2015, Law 22/2015 (amending Law 7/2010) (CMA (Capital Markets Authority) Law) and full new executive regulations thereof No. 27/2015 (CMA Executive Regulations) came into force (collectively, the New Rules).
The CMA Law amended the Kuwaiti Companies Law 10/2012 by canceling Articles 178 to 207 of the Companies Law. Most important result is the removal of the mandatory restriction on the size of the Sukuk an operating company can issue.
The Sukuk regulation under the New Rules can be summarized as follows:
1) Allows different types of Sukuk issuance either directly by a company or through an SPV. There are also detailed rules for an issuer, obligor and originator of the Sukuk. The role, rights and obligations of a trustee, custodian of Sukuk assets, payment agent, pledger, guarantor, clearing agent, and settlement agent are also well defined.
2) Defines the line between a private offering and a public offering of Sukuk in a clearer manner. In a public offering, no redemption of the Sukuk is permitted before one year upon issuance and periodical distributions are a must. A private offering is not allowed in cases where Sukuk are issued by a public entity.
3) Convertible Sukuk are now expressly regulated which should also apply to exchangeable Sukuk. Corporate approvals to issue the conversion shares must be obtained in advance (such as the approval of the board of directors and the extraordinary general meeting). The conversion option must be granted to the Sukukholders and not to the issuer and allow for the conversion price adjustment due to corporate events.
4) Types of Sukuk assets are defined providing Sukukholders a direct and indirect right to such assets and providing for a protection against other creditors and allowing for such assets to be used as a source of payment and/or risk participation.
5) The issuer, obligor and originator are obliged to make mandatory disclosures of major events to regulators and Sukukholders.
6) Defines the investment grade rating of the Sukuk (not a corporate rating). Rating is mandatory in a public offering and in the case of listing in an exchange and optional to the CMA in other cases which can impose a periodical rating update.
7) Provides for detailed SPV rules and recognize for the first time in Kuwait an orphan SPV and its bankruptcy remote concept. The share capital of an SPV can be owned by up to three shareholders as nominees (eg CMA-licensed person, a law firm or the obligor) which makes the share capital protected from creditors of shareholders and also makes it immune from attachments and bankruptcy events.
It also defines the deed of trust (financial trust by contract) recognizing the Amanah concept under Shariah principles. All Sukuk documents and agreements are to be filed with the CMA. The obligor must also provide the full undertaking cost.
8) Provides for detailed rules for the Sukukholders Association and its meetings (prior five-day notice in newspapers or by letters or three days by hand). Quorum and voting do not change from those thresholds provided in the canceled provisions under the Companies Law (Quorum must be two-thirds in the first meeting and one-third in the second meeting. Voting must be by two-thirds of the quorum. Major decisions affecting holders require a quorum of two-thirds).
Hossam Abdullah
Legal Counsel & Managing Partner
Al-HOSSAM LEGAL (Adlouni & Partners) Legal Consultants & Attorneys
Al-Hamra Business Tower, 35th Floor, Kuwait City
PO Box 5819, Safat 13059, Kuwait.
Email: [email protected]
Mob: +965 9000 3737 Direct: +965 2239 1553
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www.hossamlegal.com
Hossam Abdullah is the managing partner of Al-Hossam Legal (Adlouni & Partners). Al-Hossam Legal is a full corporate, commercial, banking and finance law firm in Kuwait that focuses on structuring and handling international commercial transactions, conventional and Islamic finance, debt and equity deals, capital markets, investment funds, mergers and acquisitions, taxation and selected major litigation and arbitration. Partners of Al-Hossam Legal have in-depth knowledge and experience of Shariah principles and rules and led major Islamic transactions not only in Kuwait but also in the GCC region, Europe and the US.
With more than 28 years of comprehensive legal experience on almost all major landmark transactions in Kuwait, partners of Al-Hossam Legal are well known among clients and peers as the city’s best professional legal service providers in terms of quality, delivery time and creative legal structures within the boundaries of traditional laws and court precedents.
Even though Al-Hossam Legal as a law firm has been established only during last quarter of 2015, it is the most rapidly growing law firm in the city and has successfully attracted major local, regional and international banks, financial institutions, companies and high-net-worth individuals.