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New law puts Kuwait Capital Market on par with international counterparts

CML regulates, promotes stability in Kuwaiti securities market

 By Ahmed Al-Naqeeb Arab Times Staff KUWAIT CITY, Dec 17, 2014:

In another post of the Legal Eagle, where we shed light on matters that law practitioners around the country has deemed important to share with the public, we tackle Acquisitions under the Capital Market Law in Kuwait. Nikky Samuel, a British trained Associate at Al-Markaz law firm, joined Al Markaz in April of 2012 and emphasizes her practice on commercial and corporate matters. Her experience spans across general practice in Europe, Middle East and Africa.  Giving us an overview on the matter, Nikky stated that The Capital Market Authority Law No 7/2010 (the “CMA”) and its accompanying Executive Regulations (the “bylaw”)regulates the securities market in Kuwait, and that it was established in order to promote more transparent and greater regulation in the Kuwaiti securities market. She stated that before the passing of the CMA there were no clear provisions on protection of minority right, disclosure obligations, or sanctions for noncompliant trading activities in the securities market. Significance She explained that to appreciate the significance of the CMA with respect to acquisition, it should be known that Kuwait securities market is one of the largest and most established securities market in the Arabian gulf region. Therefore, the regulatory procedures which have been put in place better sets Kuwait securities market in par with its international counterparts. Investors in the Kuwait Stock market will be clear to an extent on their obligatory requirements as stated in the CMA and the bylaw. She added that although the CMA does not address all the issues, it has at least made a remarkable effort at transparency. She went on further to explain that shares acquisition as defined by the CMA is the offer or attempt to own all the shares of a listed company or all the shares of any category or categories within a listed company other than the shares owned by the offering body or affiliates. To further simplify, it is the process where a company (the “offerer”) acquires the shares of another company listed on the Kuwait Stock Exchange (the “target”). The transaction/contract will therefore be between the person who makes or intends to make an offer and the owners of the shares. Like any law, terms, regulations and obligations are put in place in order to control the practice and ensure its smooth running. Under the CMA, Nikky noted that parties involved in an acquisition are required to comply with certain disclosure obligations to prevent conflicts of interest and promote fairness. Offer For example, Article 257 of the bylaw stipulates that both the offeror and the target must disclose an offer to the Capital Market Authority (CMA) and the Kuwait Stock Exchange (KSE) where; Both parties reach an initial agreement over the offer, or where a mandatory event is triggered by an offer and any other case determined by the CMA. When asked about the process of an acquisition, Nicky explained that in order to commence acquisition, the offerer must separately obtain consent from the CMA before submitting any offer. The CMA is then required to review the application within 10 working days for approval, however, if the applicable fees to the CMA in relation to the offer have not been met or the offer does not comply with CMA articles and bylaws, the CMA is obliged to reject offer. On the other hand, if an acquisition application has been approved and submitted to the target, the target is then required within seven working days from the receipt of an offer, to provide the CMA with their reply indicating their opinion and recommendations to its shareholders. In addition, both parties are required to obtain independent advice from an independent investment advisor licensed by the CMA; this should be done at least 15 days before the general assembly meeting of the shareholders, enabling them to reach an informed decision in terms of accepting or rejecting the offer. The Kuwait Capital Market is evolving, and like any other capital market in the world, it is not faultless. Nikky emphasized that a need for a leveled playing ground for investors and participants alike was recognized, and this was therefore addressed by the coming into force of the CMA. Not only does it address underlying issues, it seeks to promote financial stability and put Kuwait on the international radar of the finance industry.