June 19, 2022
FRA’s new rules and procedures for dealing in securities
In an effort to increase the attractiveness of Egyptian assets to VCs and to secure their investments in start-ups, the Financial Regulatory Authority ("FRA”) issued Decree No. 68 for 2022 on 16 March 2022 (the “Amendment”) amending FRA’s Decree No. 94 for 2018 (the “Decree”) governing the transfer of ownership of securities not listed in the EGX.
The Decree adds a new article number (9) setting forth the possibility for directly executing transfers of equity ownership for the benefit of VCs in terms of convertible instruments.
VCs ownership of Convertible Instruments
The Amendment adds to Misr for Central Clearing, Depository and Registry’s (“MCDR”) mandate the ability to act as an escrow agent in cases where VCs invest in start-ups through convertible instruments. MCDR acts as such with the view of ensuring the execution of the conversion and ownership transfer of such instruments on the EGX, all in accordance with the agreements entered into between the VC and the start-up’s shareholders.
The FRA is yet to issue the executive procedures for the implementation of the above.
In addition, the FRA may also exempt, through prior approval, the above security transfers from onshore payment of consideration, subject to the supervision of the Central Bank of Egypt.
Market Reaction
The Prime Minister along with the FRA, GAFI and ITIDA signed a protocol on 6 April 2022 to entice VCs to invest directly in Egypt. The protocol aims at developing and encouraging the entrepreneurial ecosystem to invest and fund Egyptian startups.
In addition, Amr Mahfouz, the CEO of ITIDA, stated that the FRA will establish facilitating regulations for the transfer of ownership of companies and entities that engage in venture capital activity by investing in establishing companies through convertible financing instruments, and will also set procedures for transferring shares ownership in establishing companies, in order to ensure the implementation of ownership transfers in the EGX.
The Decree adds a new article number (9) setting forth the possibility for directly executing transfers of equity ownership for the benefit of VCs in terms of convertible instruments.
VCs ownership of Convertible Instruments
The Amendment adds to Misr for Central Clearing, Depository and Registry’s (“MCDR”) mandate the ability to act as an escrow agent in cases where VCs invest in start-ups through convertible instruments. MCDR acts as such with the view of ensuring the execution of the conversion and ownership transfer of such instruments on the EGX, all in accordance with the agreements entered into between the VC and the start-up’s shareholders.
The FRA is yet to issue the executive procedures for the implementation of the above.
In addition, the FRA may also exempt, through prior approval, the above security transfers from onshore payment of consideration, subject to the supervision of the Central Bank of Egypt.
Market Reaction
The Prime Minister along with the FRA, GAFI and ITIDA signed a protocol on 6 April 2022 to entice VCs to invest directly in Egypt. The protocol aims at developing and encouraging the entrepreneurial ecosystem to invest and fund Egyptian startups.
In addition, Amr Mahfouz, the CEO of ITIDA, stated that the FRA will establish facilitating regulations for the transfer of ownership of companies and entities that engage in venture capital activity by investing in establishing companies through convertible financing instruments, and will also set procedures for transferring shares ownership in establishing companies, in order to ensure the implementation of ownership transfers in the EGX.
