FRA issues future flow securitisation regulations, in preparation for CIRA’s EGP 2bn offering

Fatma Salah
5 Min Read

The Financial Regulatory Authority’s (FRA) Board of Directors issued Resolution No. (115) for the year 2022, which includes the controls regulating the issuance of securities backed by future flows, which have previously been added regulating articles to those bonds to the Capital Market Law No. 95 of 1992.

The decision aims to develop tools and methods of financing in the Egyptian market, and to develop new financing tools that allow public and private legal persons to provide various financing sources to finance their projects and develop activities related to those sectors, which will positively reflect on the Egyptian economy.

The controls issued by the decision included that securitization companies may issue bonds, provided that their proceeds are directed to finance public or private legal persons after the approval of the competent authority in return for the cash flows that arise for the benefit of these entities, expected to enter into the future in the custody of the assignor. The transfer takes place for a percentage of the future cash flows of a specific project or projects resulting from one or more assets to the assignor, during a specified period, and the bond holders have a privileged right over the securitization portfolio “future cash flows” throughout the life of the issue, and the issuers may provide additional guarantees that are referenced to pay dues.

The decision included obligations that fall on the assignor of those cash flows when issuing these bonds, the most important of which is the preparation of a study approved by the auditor showing the operating rates and previous revenues of the project (if any), as well as the expected future cash flows of the project throughout the life of the issuance, and what indicates the adequacy of the corresponding future cash flows. Securitization portfolio to repay bondholders’ dues on their due dates.

The decision also included data to be disclosed in the subscription prospectus or information memorandum, as well as the data stipulated in the executive regulations of the capital market law related to securitization bonds, including the credit rating of each of the assignor and securitization bonds, which should not be less than (BBB-) or its equivalent subject to their annual renewal throughout the life of the issue, the risks that bondholders may incur, and the measures or guarantees that have been taken to reduce those risks.

Mohamed Farid, Chairperson of FRA, said that future flow securities are innovative financing solutions to enable public entities to develop and develop their businesses and improve the quality of their services provided to citizens, as well as their ability to help all entities based on utility and public services affairs to provide The necessary liquidity to raise the efficiency and quality of its services provided to citizens.

Farid added that the new mechanism allows public entities to obtain financing while preserving the state’s assets and capabilities for future generations.

Farid added that developing non-banking financial tools and finding innovative financing solutions helps institutions achieve growth goals and provides new types of investment tools, and the development of financing tools is one of the catalysts that help existing companies to develop and grow their business volumes.

In a related context, the Cairo Investment and Real Estate Development Company (CIRA) is close to completing a securitization issuance for future financial rights worth EGP 2bn.

Sources related to the issuance told Daily News Egypt that the issuance has completed the final procedures, and is awaiting final approvals by the FRA and expected it to be issued before the end of this month.

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