April 2013
Sharkawy & Sarhan (“S&S”) advised Societe Générale on the sale of its entire stake in its listed Egyptian Subsidiary National Societe Générale Bank (“NSGB”) to Qatar National Bank. The value of the transaction amounted to USD 1.97 billion for the stake of Societe Générale which represents 77.17% of the shares of NSGB. The transaction is expected to be one of the largest transactions in Egypt this year.

S&S role included advising on and negotiating the Egyptian law aspects of the Share and Purchase Agreement, assisting in the legal due diligence, advising on the mandatory purchase offer requirements under the Capital Market Law, preparing the documents required for executing the transaction and obtaining the approval of the Egyptian Financial Supervisory Authority and the Egyptian Stock Exchange, and dealing with various regulators.

S&S role also includes advising Societe Générale on selling its stake in other non bank subsidiaries.

S&S team on this transaction included partners Ahmed El Sharkawy and Karim Sarhan, senior associate Radwa Sarhan, and associates Heba Raslan, Ahmed Farghal, Yosr Hamza and Esraa Abdelmoniem.

Allen & Overy acted as international counsel for Societe Générale.

This publication is intended for general guidance only. It is not intended to render professional legal advice. No reader should rely on any information contained in this publication. In case you have any questions on issues reported here please send an email to Radwa Sarhan (rs@sharkawylaw.com), or Karim Sarhan (ks@sharkawylaw.com). If you do not wish to receive this newsletter please let us know and we will remove you from our mailing list.

March 2013
Recently, EFSA has taken a rigorous approach regarding the issuance and conversion of foreign depository receipts (“FDRs”) (including GDRs and ADRs). This came after the recent acquisition involving the Global Depository Receipts (“GDRs”) of Orascom for Construction and Industries (“Orascom”) by a Dutch company – OCI N.V. in consideration for a share swap to GDRs holders of OCI N.V. shares. EFSA issued three new decisions regulating FDRs in a stricter manner. Our reading to the new decisions suggests that recent transactions involving FDRs, in particular the acquisition of the OCI Egypt GDRs, has highlighted the rather scant regulatory regime of the FDRs corresponding to the shares listed on the Egyptian Stock Exchange (“EGX”).                                  

EFSA has based its measures on three axes with a view of maintaining more control over FDRs and avoid structures utilizing EFSA’s lack of control over cross-jurisdictional FDR transactions.

First, Limiting the Maximum Portion of the Share Capital of an EGX Listed Company Traded in the Form of FDRs :                                                             

The board of EFSA issued its decision no. (8) (27 February 2013) providing that FDRs must not represent more than one third of the share capital of the issuing listed company. Speculations suggest that this decision has been in response to the recent acquisition by OCI N.V. of the OCI Egypt GDRs which utilized a structure where more than 75% of the share capital of OCI Egypt was acquired offshore in the form of GDRs outside EFSA’s supervision or control. 

The issuance provisions of the decision explicitly state that it will come into effect as of the day following its publishing in the official gazette. It does not address, however, how the EGX will apply the new limitation to existing listed companies that already have listed FDRs in excess of one third of its issued capital.

Secondly, Restricting Egyptian Brokers and Portfolio Managers to Execute FDRs Trades only Through EFSA Pre-approved Brokers :

The board of EFSA issued its decision no. (9) (27 February 2013) requiring Egyptian brokerage companies to obtain a special license to trade in FDRs on behalf of their customers. These licensed brokers must abide by additional compliance and reporting obligations to obtain and maintain the FDRs trading license. Brokerage companies that do not have this special license from EFSA are absolutely banned from dealing in FDRs, whether directly or by using one of the EFSA pre-approved brokerage companies. Furthermore, Egyptian portfolio management companies are banned from making any trades over FDRs except through an EFSA pre-approved brokerage company.                                    

The objective of this decision is to limit the Egyptian pipeline for FDR trades to be only through the EFSA pre-approved brokers that are subject to the additional compliance and reporting requirements enabling EFSA higher degree of supervision, tracking and control over the FDR trades coming out of the Egyptian market.

There is no explicit grace period for compliance with these new rules. In addition, the issuance provisions of the decision explicitly state that it will come into effect as of the day following its publishing in the official gazette, and hence it will take immediate effect.

Thirdly, Rules for Issuance and Conversion of FDRs Corresponding to EGX Listed Shares :

It was announced on 3^rd of March 2013 that EFSA has circulated to both the EGX and the Egyptian central depository (Misr for Central Clearing Depository and Registry – “MCDR”) rules for issuance and conversion of FDRs corresponding to shares listed on the EGX. The circular is not published, but there is a press release on the website of EFSA briefing the salient principles set out by these rules. These new rules impose several controls targeting the issuing company, the offshore depository bank, and its local agent/custodian. These new controls revolve around imposing reporting, disclosure and compliance obligations on the issuing company, the offshore depository bank and its local agent/custodian.                                   

Pursuant to Chapter 12 of the Executive Regulations of the Capital Market Law no. 95 for 1992 (the “Takeover Rules”), any purchaser who acquires or wishes to acquire one third of the share capital or voting powers of a public company, either directly or indirectly, is mandated to submit a mandatory tender offer (“MTO”) for all the shares of the target public company. In practice, EFSA and the EGX were using their authority to block any transaction that will result in exceeding the aforementioned thresholds until an MTO is made. Recently, EFSA was alerted to a gap in the Takeover Rules, whereby it was possible for a purchaser to acquire the majority of the shares of a public company by acquiring its offshore traded FDRs while the MTO is made only as a post acquisition step. The purpose of the new rules is to ensure that EFSA can impose an MTO prior to the acquisition of one third of the share capital or voting powers of a public company.

Accordingly, the recent rules referred to in the EFSA press release were issued specifically to fill in the regulatory gap in connection with offshore acquisition structures involving FDRs including, inter alia:

• acquisitions through purchase offers on FDRs shall be ineffective, where the FDRs must first be converted into shares in order for the purchase offer to take place directly on the ordinary shares;
• in case of acquisition on the FDRs, the depository bank and its local agent/custodian will have to keep the shares corresponding to the issued FDRs and will have to abide by the Takeover Rules before executing any conversion; and
• MCDR will have to stop the registration of transfer of ownership and settlement of any transactions executed in breach of the Takeover Rules and will have to notify EFSA and the issuing company of the same.

Given that the language of the new rules for FDRs issuance and conversion are not yet available, the above are only the broad principles that were summarized in EFSA’s statement without much detail on the mechanisms of application thereof.

Although it is not yet clear how the abovementioned decisions/regulations will affect the acquisition transaction of OCI Egypt and the prospected mandatory tender offer for the remainder of its ordinary shares listed on the EGX; the ultimate effect of the rules is that it will not be possible to adopt a similar acquisition structure as the one followed in the OCI Egypt deal in the future.

This publication is intended for general guidance only. It is not intended to render professional legal advice. No reader should rely on any information contained in this publication. In case you have any questions on issues reported here, please send an email to Ahmed El Sharkawy (as@sharkawylaw.com), Amr A. Abbas (aa@sharkawylaw.com), or Mohamed Nabil (mn@sharkawylaw.com).

December 2012
New Egyptian Constitution Comes Into Effect:

Over the past two weeks, Egypt held a referendum on the newly drafted constitution post the Egyptian revolution (the “Constitution”). Despite the unrest in the streets and the protests against the proposed draft, the Constitution was approved by a majority of 63.8 %. The turnout in the referendum was 32.68% of those eligible to vote.

Parliamentary Elections Next:

The elections of the new house of representatives (which will assume the legislative power) are due to start within sixty days.

It is worth noting that under the Constitution, the majority of the house of representatives will have the final say in appointing the prime minister.

The elections are expected to witness a very strong competition between the Egyptian political parties with various alliances being formed now.

November 2012
First Bid for Gas Importation Licenses:
The Minister of Petroleum, Osama Kamal, has announced the approval of the Cabinet on the memorandum presented by the Egyptian Natural Gas Holding Company (“EGAS”) to grant licenses for the importation of natural gas. The licenses will be issued for a specific period of time and for fees, to be paid to the government in exchange for using the national grid to transfer the gas.

The Minister of Petroleum said the importation of the gas is required in particular considering the needs of the petrochemical projects and the cement factories. The Industrial Development Authority has issued new permits for cement factories.

EGPC To Receive Financing:

On Monday 1 October 2012, the government of Egypt signed a treaty under which the International Islamic Foundation, member of the Islamic Development Bank Group, would finance the Egyptian Petroleum Company (“EGPC”) by an EGP 1.4 billion on the basis of an Islamic murabaha structure.

Furthermore, a framework convention was signed between the government of Egypt and the International Islamic Trade Finance Foundation, with a term of 3 years underwhich EGPC can receive finance of up to USD 200 million annually for importing petroleum products from the member countries of the Organization of Islamic Cooperation. According to the framework convention, all the finance agreements to be entered under the umbrella of the framework convention should be sharia’a complaint.

Sharkawy & Sarhandeems these as positive steps towards solving the liquidity issues faced by EGPC

October 2012
Egypt signs a treaty for EGP 1.4 billion to finance EGPC under Islamic Murabaha Structure:

This week, on Monday 1 October, 2012, Egypt signed a treaty under which the International Islamic Foundation, member of the Islamic Development Bank Group, would provide EGP 1.4 billion finance to the Egyptian Petroleum Company (EGPC) on the basis of a Murabaha structure. Moreover, the Minister of Finance confirmed that the government does not intend to postpone the reduction of energy subsidies until after the parliamentary elections. Studies show that 40% of persons benefiting from the energy subsidies are not in actual need of it, a matter the government is keen to change without affecting the position of low-income persons.

New incentives for the renewable energy sector by the Supreme Council for Energy:

The Supreme Council for Energy (the “Council”) has issued new incentives for the solar and wind investments, to support investments in renewable energy. The Council decided to exempt the spare parts used in the production of electricity from solar power and wind from both taxes and customs. In addition, the Council will allocate plots of land belonging to the Renewable Energy Authority to private sector companies working in this field to establish projects for producing and selling electricity.

Indian Investment in Egypt continues to rise:

Sanmar Chemicals company, the largest Indian investor in Egypt, expands its businesses and line of production in Egypt by USD 200 million. Sanmar Chemicals’ investments in Egypt exceed the amount of USD 1 billion. Minister of Investment announced the collaboration between Egypt and India in the near future, with more investments to come, particularly in the fields of technology, medicine, engineering, and textiles industries.

August 2012
Egypt’s New Cabinet and Vice President

On 1 August 2012, president Morsi appointed Dr. Hisham Kandil as Egypt’s new prime minister who formed a new cabinet including new ministers while keeping other ministers. Prime minister Hisham Kandil was the former minister of water resources and irrigation in 2011.  Prior to that, he held the position of chief of water resources at the African Development Bank. Prime minister Kandil does not belong to any political party and has no affiliation with the Muslim Brotherhood or any other party.  He holds a PHD in biological and agricultural engineering with a minor in water resources from the North Carolina State University.
Recently, several announcements have been made by senior officials in prime minister Hisham Kandil’s government on the government’s plans for settlement with investors, which indicate that his government is an investor-friendly government.

The President also appointed a new vice president, Mr. Mahmoud Mekki, who was a senior judge at the Court of Cassation and known for his efforts to defend the independence of the judiciary and rule of law during the previous regime era.

Head and Several Members of SCAF Retirement
President Morsi has announced the retirement of head of SCAF, Hussein Tantawy, and Chief of Staff, Samy Anaan, rewarding them the Nile Medal for their efforts and appointing them as his consultants. Moreover, the president has cancelled the Supplementary Constitutional Declaration that has been previously issued by SCAF prior to the results of the Egyptian presidential elections. Accordingly, until the election of a new parliament, the president is holding the legislative power.

The New Egyptian Constitution
Newly appointed vice-president has announced the date of completion of the new Egyptian constitution post the revolution by end of September 2012 which will be presented for a public referendum shortly thereafter. Progress is already made in drafting the Constitution and new articles on public rights and freedoms have been introduced.

Following the completion of the Constitution, new parliamentary elections will be held to substitute the dissolved parliament (see our previous issue in June no. 8).

Sharkawy & Sarhan regards these updates as positive steps towards a stable democratic regime.

President Morsi  abolishes  incarcerating accused pending trial in press crimes
President Morsi has issued law no. 1 for the year 2012 abolishing incarceration of accused in publishing and press crimes. This amendment was demanded by the press whose members have faced being locked pending trial for press crimes such as insulting the president. However, insulting the president charge is still a criminal offense and the punishment of imprisonment still exists may be imposed upon a guilty finding according to article 179 of the criminal Code.

It is worth noting that vice-president Mahmoud Mekki has recently announced that whilst the abovementioned charge remains a criminal offense, executive authority plans to have imprisonment as a sanction applied only on crimes of physical assault, whilst other crimes would be sanctioned with fines. Moreover, the minister of state for legal and parliamentary affairs, Dr. Mohamed Mahsoub, has just announced plans to abolish the article criminalizing the offense of insulting the president.

June 2012
Next Egyptian President:

The final results for the Egyptian presidential elections are finally approaching and shall be announced on Thursday 21 June 2012 as scheduled. The indicators towards a winning candidate for the time being are in favor of Dr. Mohamed Morsi, chairman of the Freedom and Justice Party, the political arm of the Muslim Brotherhood Group. Dr. Morsi was member of the Egyptian parliament from 2000 to 2005. He holds a Bachelor's and Master's Degree in engineering from Cairo University and a PHD in engineering from the University of Southern California. He was an assistant professor at California State University,  and professor at Zagazig University.

The hope is that the election of a president leads to more stability in all social, legislative and economic aspects of the country.

Parliament Dissolved:

The Supreme Constitutional Court has recently decided that certain provisions of the parliament’s election law were unconstitutional because they violate article 38 of the constitutional declaration. According to article 38, the election regime is in violation of the equality principle because the parties’ candidates were allowed to run in both the closed party list system and the individual system, while the independent candidates were only allowed to run in the individual system and prevented from forming lists. The Court stated in its reasoning that its decision entails the dissolution of the parliament.

Notably, the Court stated also that the dissolution of the parliament does not affect laws and regulations issued by the parliament, which remain valid and effective.

SCAF Announces a Supplementary Constitutional Declaration:

    The Supreme Council of the Armed Forces (SCAF) has announced on Monday 18 June 2012, the issuance of the supplementary constitutional declaration (the “Declaration”). The Declaration was issued to deal with the effect of the dissolution of the parliament by virtue of the Supreme Constitutional Court’s decision which manifested in decree no. 350 /2012.

The Declaration limits the presidential powers and grants SCAF more powers. SCAF under the Declaration assumed the legislative power including the control over the public budget until a new parliament is formed and the power to constitute a new constitutional assembly to draft a new constitution in case the current one elected by the parliament was dissolved for any reason.

It is unknown whether the Declaration will continue to remain in effect due to the political movements challenging it as illegitimate and challenges submitted to courts against it.

Constitutional Assembly Convenes:

The elected members of the constitutional assembly (the “Assembly”) were announced, and the Assembly has convened on Tuesday 19 June 2012. The Assembly has elected the chief judge of the court of cassation as the chairman. The administrative court is currently examining whether the Assembly was validly formed or not.

Emergency Law Expired:

The parliament has not renewed the Emergency Law. Accordingly, the Emergency Law which has been in effect since 1981 has finally expired on Wednesday 25 January 2012. The Emergency Law gave law enforcement and the executive branch wide and exceptional powers over citizens. This is a welcome step towards rule of law.

May 2012
Mubarak Found Guilty
Following on Sharkawy & Sarhan’s political update issue no. 7, the court has found former  president Mubarak and former minister of interior Habib El Adly guilty and sentenced them to life imprisonment for failure to stop the murder of protestors during the Egyptian revolution. It is worth noting that there have been six high-ranking Ministry of Interior (MOI) officials charged also in this case. However, they were all acquitted for lack of evidence linking the police to the murders.  The reaction of the people to this verdict came unwelcoming, as many people were disappointed from the failure to link the police to the murder of the protestors.  The court has also dismissed the financial corruption charges against the former president and his sons because they were time-barred.  The full reasoning of the court has not been published yet.

May 2012
Egyptian Presidential Elections Turn-out
President of the Supreme Constitutional Court and Supreme Committee for the Presidential Elections announced last Monday the results of the Egyptian Presidential Elections’ first round. It appears from the turn-outs that none of the candidates has acquired the simple majority (50%+1) and therefore, a second round between the two candidates with the highest voting numbers will take place, namely, Mohamed Morsy, candidate of the Freedom and Justice Party (FJP) who has seized around 5.7 million votes and Ahmed Shafik, former senior commander in the Egyptian Air Force and former prime minister of Egypt in the period between February and March 2011, who came in second place, seizing around 5.5 million votes.

The run-offs are expected to take place on the 17th and 18th of June. Due to the slight difference in number of votes, predictions of a winning candidate are unclear.

Final verdict in Former President Mubarak’s Trial
The long awaited ruling in the trial of former president Mubarak, former Minister of Interior Habib El Adly and Mubarak’s sons Gamal and Alaa Mubarak is finally taking place this coming Saturday 2 June 2012. The charges against the defenders are financial corruption and murder of protestors during the Egyptian revolution.

Mubarak’s sons face criminal charges for manipulation of stock prices
Former president Mubarak’s sons, Gamal Mubarak and Alaa Mubarak were charged yesterday with unlawful enrichment gained from manipulation of prices in the stock exchange.
Moreover, Gamal and Alaa were also charged with unlawful enrichment for purchase of 2 villas in Sharm El-Sheikh with undervalued prices from businessman Hussein Salem who is an accomplice in the directed charges.

May 2012

More Transparency in Government Procurement: Online Publication of Award Decisions of Government Tenders

The Prime Minister has issued decree no. 463 for the year 2012 (“the Decree”), regulating electronic publishing of government tenders results. The Decree requires all public entities to publish the decisions related to the evaluation results of financial and technical bids on the website: (www.etenders.gov.eg/en/). The Decree applies to all governmental entities and authorities with exception of national security and defense authorities. The website is available in both Arabic and English languages.

In 2010, the Prime Minister issued a similar decree in relation to the publication of requests for proposals of public tenders on the same website.

Sharkawy & Sarhanwelcomes this step which increases the level of transparency in governmental procurement and shows the government determination to continue improving in this respect. Yet, at this early stage of implementation, we do not recommend relying exclusively on this website for obtaining information regarding government tenders

The Egyptian procurement laws do not include any provisions that promote the computerization of the public procurement process or using electronic means of communication between public entities and bidders (i.e. submitting bids electronically/ eProcurement). This is expected to be an area of improvement which the government will be working on.

New Rules for Acquisitions made by Egyptian Listed Companies:

The board of the Egyptian Financial Supervisory Authority (EFSA) has recently introduced an amendment to the rules of Securities’ Listing, Continuance of Listing and Delisting of the Egyptian Stock Exchange (the “Listing Rules”). The amendment to Article (33) introduces a definition to the term “affiliated companies” which was not defined in the previous rules.

Article (33) of the Listing Rules was amended in November 2010 to require that any listed company that wishes to acquire, either by itself or through its “affiliated companies”, 20% or more of the share capital or voting rights of a non-listed company must submit to the Egyptian Stock Exchange a fair value study prepared by an independent financial advisor for the fair price of the acquisition. According to the recent amendment which was passed by the board of EFSA on 2 May 2012, the term “affiliated companies” was replaced by “subsidiary and sister companies as defined in the Egyptian Accounting Standards”.

France Telecom SA’s Subsidiary Launches Mandatory Purchase Offer to Purchase Egyptian Company for Mobile Services SAE (Mobinil):

The Egyptian Financial Supervisory Authority (EFSA) announced its approval of the mandatory purchase offer presented by MT Telecom SCRL, a France Telecom’s subsidiary, to purchase 100% of the shares of the Egyptian Company for Mobile Services SAE (Mobinil) for a price of EGP 202.5 per share. Orascom Telecom Media and Technology Holding S.A.E will keep 5% of the equity shares of Mobinil.  The total value of the transaction exceeds 3 billion US dollars.

Mobinil appointed HC Securities as its independent financial adviser to evaluate the offer submitted by France Telecom.

FT launched a hostile purchase offer on Mobinil in 2010 for EGP 245 per share. Yet Egyptian courts stopped the offer following a claim brought by Orascom arguing that the offer breached the principle of equality between shareholders and that EFSA did not follow the proper legal procedures while approving FT offer.

Under Egyptian law, any juridical or natural person who acquires or wishes to acquire, by itself or through connected parties, one third or more of the shares of a target company, must submit to the other shareholders a mandatory purchaser offer approved by EFSA for buying all the shares of the target company. A target company for this purpose is a company whose shares are either listed in the Egyptian Stock Exchange or has offered securities to the public.

Egyptjoins the International Renewable Energy Agency:

The People’s Assembly has finally approved the articles of association of the International Renewable Energy Agency (IRENA) which has come into effect in 2009 and signed by 157 countries, 90 of which have ratified the charter.

The IRENA intends to assist developing countries through providing various aids for trainings and technical advice in addition to supporting researches in renewable energy.

Egyptplans to benefit from the new and renewable energy technology introduced in the developed countries, especially in the solar energy sector which is considered one of Egypt’s main natural resources.

In 2008, Egypt approved a strategy to satisfy 20% of its growing demand for electricity from renewable energy sources by 2020. Egypt intends to meet 12% of the demand through wind power, requiring 7,200 MW of wind farms, 2,200 MW of which is to be procured by the New and Renewable Energy Authority and the remaining 5,000 MW to be procured by the private sector.

April 2012

Draft Amendment of Egyptian competition law:

An amendment draft to the Egyptian competition law is on the agenda of the People’s Assembly. The draft proposed the following amendments:

• Market dominance will be deemed to exist automatically if a person has 50% or more of the market share.
• A prior approval from the Regulator must be granted in relation to agreements among competitors on market prices.
• Members of the board of directors of the regulatory body (“the Regulator”) will be chosen by both the government and the People’s Assembly.
• Fines for violation will increase from a minimum of EGP 100,000 up to EGP 300,000,000 to a minimum of EGP 500,000 to EGP 500,000,000 or 20% of the value of sold goods whichever is higher.

An exemption from sanctions to the violating person who first reports the violation and presents evidence to the Regulator is also introduced.

March 2012
Presidential Elections:

Recently, the chairman of the Higher Committee for the Presidential Elections announced the scheduled dates for the presidential elections in the following course:
 

• The submission process of presidential nominations will be for duration of one month commencing on March 10^th until April 8^th, 2012.
• The presidential elections will take place on May 23^rd and May 24^th.
• The run-off between the two leading candidates will take place on June 16^th and June 17^th, if none of the candidates managed to score (50% + 1) in the first round.
• The announcement of presidential elections results will take place on June 21^st, 2012.

The Constitutional Assembly:

A joint meeting was held by the People’s Assembly and the Shura Council to elect a constitutional assembly for drafting the new Egyptian constitution.

The debates around the formation of the Constitutional Assembly settled on forming such assembly from both councils and other individuals who will be chosen from a wide range of different backgrounds and positions to represent all people.

The date of voting for the composition of the Constitutional Assembly is not yet set. According to the constitutional declaration, a period of six months shall be given to both councils to form the Constitutional Assembly. An additional period of six months will be granted to such assembly in order to draft the new Egyptian constitution, which will then be voted for in a public referendum.

However, the SCAF and the Islamic majority in the People's Assembly have indicated before their desire to have a new constitution coming into effect before the results for presidential elections are announced. Therefore, it is possible that the new constitution will be voted for before June 21^st, 2012.

February 2012
Integrated Development in Sinai Peninsula

A new law governing development in Sinai Peninsula (law no. 14 for the year 2012, the “Law”) has been issued. The Law made substantial changes concerning foreign ownership and usufruct of real estate in Sinai Peninsula without prejudice to existing projects.

 The main differences are the following:

1. The maximum period of usufruct is 30 years, subject to further extension whereby total period may not exceed 50 years instead of the maximum limit of 90 years in the preceding laws.
2. Whilst the previous laws restricted the ownership of lands and buildings in Sinai Peninsula, the Law permitted as an exception, both natural and juridical persons, to own establishments and buildings in Sinai Peninsula, but not lands.
3. In addition, the Law allowed foreign investment in Sinai Peninsula, but required such investments to be done through an Egyptian joint stock company where the percentage of Egyptian shareholding must be at least 55%.
4. Finally, contracts whose subject is lands situated in Sinai Peninsula may not include arbitration clauses in relation to disputes arising from ownership, usufruct, or the carrying out of projects on such lands.

Settling Investors-State Disputes and Reconciliation with Investors

- The Prime Minister has formed a committee to settle disputes between investors and governmental entities. The committee will convene periodically and may appoint experts to examine any case. It is also empowered to request any document relevant to the dispute.

- Notably, this does not prevent the investors from resorting to courts or arbitration if the suggested settlement was unsatisfactory.  In all cases, the committee’s decision binds the government and its entities upon the approval of the Council of Ministers.

- Moreover, SCAF has issued law no. 4/2012 amending the Investment Law to allow settlement with investors who committed crimes of seizure of public funds in undertaking activities subject to the Investment Law.

-Such settlement terminates the criminal proceedings at any stage of the criminal prosecution prior to the issuance of a final judgment, provided that the investors return the illegally seized public funds, or pay their market value at the time of committing the crime. In case a judgment has been rendered before the settlement including fines, the investor must pay such fines.

- Sharkawy and Sarhan considers this to be a positive sign from the government towards private investment in Egypt.

 Islamic Assets growing in Egypt

- The Egyptian Government, represented in the Ministry of Finance, plans to adopt for the first time the mechanism of issuing Islamic bonds (Sukuk) to foreign markets, with USD 2 billion value, which will be used to fund the budget deficit and infrastructure projects.

- The issuance is expected to take place within the next couple of weeks and will be for a maturity period ranging from three to five years.

- It is worth noting that the current parliament encourages Islamic finance.

Egyptian Presidential Elections

- Due to the eruption in protests in the streets of Egypt demanding the acceleration of power hand over to civilian administration, SCAF announced that the Egyptian presidential elections will be held earlier than their original date set by the end of June.

- The Head of SCAF stated that nominations for presidency will be accepted by March 10, a month earlier than their original date.

January 2012
High Turnout and Final Results

A week ago, the Egyptian parliamentary elections process of the main house (the People’s Assembly) was successfully completed. The results did not come as a surprise, when the coalition led by the Freedom and Justice Party of the Muslim Brotherhood won 47% in total of all threestages, and the Salafist Nour Party, the second runner up, by 24%. Unexpectedly however, the New Wafd Party - a nationalist liberal party – came in third place with 7.8%.

The voter turn out in the third stage came out successful and in accordance with the previous stages, with 62% of voters taking the polls.

January 2012
High Turnout and Expected Results

Throughout December, the Egyptian Parliamentary Elections have managed to close their first and second stages in final decisive results. The second stage results did not fall far from the first stage, withthe coalition led by the Freedom and Justice Party (FJP) of the Muslim Brotherhood winning the majority of seats by 51% in both stages, 40% of which belonging to the Muslim Brotherhood alone, the Salafist Nour Party (SNP) coming in second by 24%, the liberal-oriented Wafd Party seizing third place by 8.5%, and the coalition of the Egyptian Mass - the leading liberal party – in fourth place by 12%. The remaining parties, severally, won by 11.5 %.

The voter turnout in the second stage was even higher than the first stage with 65.98% of voters taking the polls and 43% in the run-off elections.

Third Stage and People’s Assembly First Meeting

The third stage will take place on the 3rd and 4th of January 2012, and run-off elections on the 10th and 11th of January, which will determine the final results of the Main house of the Parliament (People’s Assembly). It will comprise the remaining nine governorates of Egypt.  Finally, the Supreme Council of the Armed Forces (SCAF) has issued a decision last week inviting the People’s Assembly to convene on 23 January 2012, instead of March 2012.  This is a positive step towards handing over the power, which allows the parliament to assume its legislative role immediately.

The Shura Council

SCAF  decided this week to advance the date of the House of the Parliament (the Shura Council) elections to the 22February 2012 instead of the end of March, and accordingly the first meeting between the People’s Assembly and elected members of the Shura Council will be by the end of February.

December 2011
In a welcome decision, the Minister of Justice issued Decree 9739/2011 (the Amendment) to facilitate the process of enforcement of an arbitral award, which amended Decree 8310/2008 (the Decree). In 2008, the Minister of Justice issued the Decree to regulate the deposition of arbitral awards before the courts for their enforcement. The Decree established a technical office (the Office) within the Ministry of Justice to decide whether an award can be deposited.

The Office, which was not envisaged by the Arbitration Law, had to ensure that an arbitration award is not related to a list of matters--most importantly, an arbitration award could not be deposited, according to the Decree, if it related to a right on a real estate. Thus, the Decree formed an undue obstacle to a simple procedure under the Arbitration Law and unduly restricted the matters that could be arbitrated.  What’s more, the Decree added a waiting period of ninety days from the notification of the award to be able to request the deposit of the award (the period for requesting the annulment of the arbitration award). This added an unnecessary delay to the ability to deposit an award.

The Amendment has eliminated (i) the restriction on arbitrating matters relating to real estate and other matters in the list, (ii) the binding effect of the Office’s decision, and (iii) the requirement to wait ninety days.  According to the Amendment, the Office only provides its opinion on whether (i) the arbitral award violates the public order or relates to issues that may not be arbitrated; and (ii) the court in question is competent to deposit the arbitral award.

This Amendment also affirms the authority of the competent court to issue the enforcement order after having ascertained that the arbitral award conforms to the conditions stipulated in article 58 of the Arbitration Law, which are based on the Model UNCITRAL Law.

While the Amendment did not completely erase the obstacle of the Office’s review, it is a welcome step as it eliminated the substantive restriction on arbitrating certain matters, it reduced the discretion and binding effect of the Office’s decision to only providing its opinion, eliminated the waiting period for depositing an award, and reaffirmed the complete authority of the court to decide the enforcement of the arbitration award.

December 2011
Voter turnout

The first round of Egypt’s parliamentary elections has shown a high voter turnout. The High Elections Committee announced on Monday the 5^th of December that 52% of the registered voters took to the polls. This is one of the highest turnouts in Egypt for decades. It indicates the Egyptian people’s eagerness to participate in the democratic process. The voter turnout is even more impressive considering the long queues to vote, the complicated election process and the high rate of illiteracy in Egypt. 

Primary results 

As the Egyptian people anxiously wait for the results of the first stage of the parliamentary elections covering one third of the seats,  primary results and initial indicators show that the coalition led by the Freedom and Justice Party (FJP) of the Muslim Brotherhood emerged as the biggest winner in the first round of parliamentary elections. This coalition includes the leftist Karama party and the liberal-oriented New Ghad party.

Despite the fact that final results have not been announced since the elections are still ongoing, firm initial indicators confirm that the FJP coalition has gained around 37% of the votes, the Salafist parties around 24%, and the coalition of the Egyptian Mass - the leading liberal party - around 14%. The remaining 25% was distributed mostly amongst other liberal parties.

The FJP has firmly mentioned in their agenda that their policy is committed to a civil regime and an open markets system, and that their priorities are to fix Egypt's economy and to improve the lives of ordinary Egyptians, "not to change (the) face of Egypt into (an) Islamic state."

The FJP of the Muslim Brotherhood is to be differentiated from the Salafist party. Many Egyptians are concerned that the Salafist parties may resort to suppressive means to force Egyptians - whether Muslim or Christian - to follow a radical version of Islam. Yet none of the interviews made by the Salafist parties, nor their agenda, give rise to the use of such means. The main Salafist party has announced that it will follow the people’s will in taking decisions. 

Stock market

Following the high turnout of voters and the successful parliamentary elections, all Egyptian indices at the Egyptian stock market ended higher in the days after the elections. The benchmark EGX 30 neared the 4080 mark, jumping approximately 12% in four sessions. Market analysts expected the Egyptian Exchange (EGX) to show stronger performance over the coming period.

The next steps

The proposed next steps in the election-process will be the following: 

• Remaining two stages for People’s Assembly + Shura Council;
   
• The People’s Assembly will officially convene with elected members of Shura Council on the 28^th of March 2012 whereby a committee will be appointed to draft a new constitution shortly after;   
   
• On the 3^rd of December 2011, the Supreme Council of the Armed Forces (SCAF) re-confirmed that it will hand over power to a democratically elected president on the 1^st of July 2012, regardless of whether a new constitution was drafted or not. 

December 2011
Ministerial decree on trade unions
The term of the current board of directors of the trade unions and the trade union committees who are running this year for the cycle 2006/2011 was extended for an indefinite period until a call for elections is announced.  On the 19^th of November 2011, the Ministry of Manpower and Immigration issued Ministerial decree no. 317/2011 with respect to Trade Unions to this effect (the “Ministerial decree”).

The reason for issuing the Ministerial decree is that it will be difficult to have full judicial supervision over the elections during the parliamentary and presidential elections in Egypt. In this regard, we do not expect the elections for the board of the trade unions and the trade union committees to take place before the middle of 2012, when the parliamentary and presidential elections should have been completed.

Proposed suspension of the new insurance law
Dr. Nagwa Khalil, Minister of the Social Security and Social Affairs (the “Minister”) has declared recently that she intends to suspend the new law on social insurance no. 135/2010 (the “Law”), which should enter into force in January 2012. The Minister declared that a conference would be held soon between actuaries, social security fund officials working in public sectors, and the private and public sectors, to discuss amending the Law. After the conference, the Minister stated that after reaching an agreement between representatives of different stakeholders an amended version will be introduced after consulting with the Minister of Finance during the coming weeks.

The Law has been subject to many criticisms in the media, including that :

• it is a savings system that is built on personal accounts while it should be built on social insurance in terms of rights and benefits;                  
• it has a negative effect on life insurance companies as 10 % of the salaries of employees will be deducted. This will prevent workers from buying life insurance certificates resulting in massive losses to life insurance companies. Such results will not only be instantaneous, but will continue to grow with the application of the Law; and
• it has no explicit cap on the amount of contribution, which imposes a burden on both employees and employers.

A call has been made to continue applying the current social insurance law no. 79/1975 with only a few amendments to cope with the needs and developments of the labour market.  This call was embodied in an official memo presented to the Government and Ministry of Finance for approval

November 2011
On the 8th of October 2011, the Armed Forces Supreme Council issued an amendment to the Law of the Central Bank and the   Banking and Monetary System. The amendment that came into force on the 9th of October 2011 comprises of 2 major elements:

• The number of directors sitting on the Board of the Central Bank of Egypt (CBE) will decrease to nine from its current 15 members. The Board will, as is the case in the current situation, be headed by the governor and consist of two vice governors,  the head of the Egyptian Financial Supervisory Authority and a representative of the Ministry of Finance. The number of so called “expert” members will diminish from eight to four members, and there will no longer be a representative from the Ministries of Planning and Foreign Trade.  
• The expert members, all with expertise in the monetary, financial, banking or economic field, shall not be the heads or members of the boards of directors of commercial banks or financing companies. In addition, the expert members shall not be consultants, employees or providers of professional services to any commercial banks or financing companies.

We consider this amendment to be a positive step for the banking industry which minimizes the risks of conflicts of interest between the regulator and the private sector.  

New Corporate Governance Rules for Egyptian Banks

On 5th of July 2011, the Central Bank of Egypt issued rules for the corporate governance of banks ("Banks Governance Code") and all Egyptian banks shall abide by these rules no later than 1 March 2012.  These rules govern the relations among the bank's management, board of directors, shareholders and other stakeholders along with clear definition of authorities and responsibilities of each.

The Banks Governance Code is comprehensive, and the most important aspects of the Code are the following: 

Rules regarding the composition of the board: the board of directors of an Egyptian bank should comprise of a convenient

• Rules regarding the board’s responsibilities and commitments: while the board of directors is totally responsible for overseeing the management of the bank in general, it should hold several major functions to support the bank governance system and ensure its effectiveness.
• Rules regarding the creation and tasks of board related committees, such as the Risk Management Committee, the Salaries & Remuneration Committee and the Governance and Nomination Committee. The Code gives a detailed description of the composition and tasks of these committees.           
• Rules regarding the relation between the board’s members and the bank’s top management and clear definition of authorities and tasks.                                                              
• Rules regarding the role of the board on supervising internal audit and risk management systems. The board should make optimal use of the internal and external auditors.           
             
• Rules regarding disclosure and transparency: it includes disclosing the bank’s policies in relation to conflict of interest, related parties transactions and insider dealings.        
• Rules regarding the relationship between the board and the shareholders: they guarantee an effective discussion with shareholders by holding regular meetings, and how to benefit the most from the general assembly meetings that are held annually.

We at Sharkawy & Sarhan definitely welcome the Banks Governance Code, as it minimizes the risk of conflict of interest and it brings the Egyptian corporate governance in line with international best practice.

November 2011
Recently this week, Egypt has witnessed unrest in Tahrir square and other squares in several governorates where thousands of Egyptians have gathered to protest against the current political conditions asking the Supreme Council for Armed Forces (“SCAF”) first to set date that the presidential election occurs by April 2012 and later to hand over power immediately. And due to the escalation of events, Marshal Mohamed Hussein Tantawy, head of SCAF, declared on 22 November 2011 the following:

• Acceptance of resignation of Dr. Essam Sharaf’s Government, but it would continue until a new government is in place.  
• Parliamentary elections would go forward as planned; commencing next Monday the 28th of November 2011.
• Completion of the presidential elections by no later than 30 June 2012 (instead of March 2013).
• In case the above is not acceptable, SCAF is willing to handover the power immediately after a referendum. 

The Tahrir demonstrators did not accept the SCAF concessions because they do not trust SCAF’s commitment to transition to democracy.

Meanwhile, Egypt is still safe and there is no unrest except around the streets leading to Tahrir square and other main squares in other governorates.

 It is worth noting that the parliamentary elections will be held on three stages.  Each stage covers certain geographical area.  Elections should start on the 28th of November 2011 and end on the 10th of January 2012 for the main house of the Parliament (People’s Council). The elections for the other house of the Parliament (the Shoura Council) will start on the 29^th of Jan 2012 and end on the 11^th of March 2012.

Sharkawy & Sarhanwill send further updates following the announcement of results of each stage of the parliamentary elections.

 October 2011
Recently the Administrative Court has issued 3 verdicts revoking privatization transactions related to 3 companies. The sale and purchase of the shareholdings earlier owned by the Egyptian government in the capital of El-Nasr Boilers and Pressure Vessels Manufacturing, Tanta Flax & Oil and Misr Shebin El Kom Spinning and Weaving, were voided.    

An interview with Partner Ahmed El Sharkawy regarding recent court verdicts which invalidated three privatization transactions.

 Q.Why were these privatizations nullified?

 A. Before speaking about the legal grounds, it is important to mention the overall political and social pressure behind these verdicts. There is a general feeling within the Egyptian community that the privatization program was mismanaged by the previous regime and that most transactions were associated with corruption.

This is the reason that one of the main legal grounds for nullification of the transaction(s) by the Court is the corruption and abuse of power in relation to gross under-valuation of the said companies. According to the court, the purchase price of these privatization transactions was significantly less than the market price and the actual value of such companies.

Furthermore, the Court found various procedural violations in connection with the public tendering and auction procedures which should have been followed in the sale of these companies. Finally, the said privatized companies were historically acquired by the government through nationalization and thus the Court was of the view that such companies cannot be sold in the privatization process.

Q.Do these verdicts implicate that privatization of Public works’ sector companies is – in general – no longer permitted?

A.No, the Court has stated that privatization in itself is not good or bad but the law does not protect privatization contracts acquired by corruption.

However, as most government owned companies were acquired during the Nasser period through nationalization, the legal principle set out by the Court may render most of the privatization transactions void. However, our interpretation to the verdict is that the mere fact that the relevant company was initially nationalized may not be a ground of invalidity if the transaction is not associated with corruption.

Q. What are the implications of these verdicts if one wants to acquire shares in a company previously privatized?

A. When clients came to us with this question, we advised them to investigate the history of how this company was privatized, whether it was tendered properly and whether there is any suspicion of corrupt acts at the time of privatization. This must be done before initiating any legal work on the transaction.

Q. What are the lessons learned from these verdicts?

A. Investors cannot rely on the fact that they are dealing with a governmental agency and that the governmental agency is following its own rules.  Rather the whole legal system that governs the governmental agency must be assessed to ensure compliance.  For example, legal counsel for an investor who deals with the government must advise its clients whether the relevant government entity followed the tender law or not.   

April 2011
What Happened?
On January 25, 2011, Egyptians took to the streets demanding their freedom and the
departure of President Mubarak and his regime. It took 18 days for President Mubarak to
step down and assign his powers to the Supreme Council of the Armed Forces (SCAF).

As Egyptians accepted that the SCAF would administer the country during the
transitional period, the Constitution was effectively suspended. The following are the
main events that took place:

1. In response to public demand, the SCAF dissolved the parliament and appointed
a new cabinet headed by Essam Sharaf, a popular choice.

2. Several prominent figures who belonged to the previous regime, including the
ex-president and his family, are being investigated by the Prosecutor General for
corruption and their assets were frozen pending the outcome of these investigations.

3. The SCAF declared it will honor Egypt’s international treaties.

4. The SCAF appointed a committee consisting of prominent judges and jurists to amend certain constitutional articles. The amendments included (i) limiting the president’s tenure in office to two terms; (ii) easing the requirements to run for president; (iii) restricting the president’s powers to declare a state of emergency; (iv) requiring full judicial supervision of elections; and (v) requiring the election of a new parliament, which must appoint a committee to draft a new constitution.

5. The committee’s amendments were put to a national referendum on March 19, 2011 under full judicial supervision. The turnout of voters was unprecedented, and 77% voted in the affirmative.

6. This was followed last week by a constitutional declaration that embodied these amendments and restated the key provisions of the 1971 Constitution. This declaration now constitutes the interim constitution.

7. This interim constitution provides for a road map for the transitional period, where the SCAF will assume the legislative and executive powers (in conjunction with the cabinet) until the new parliament and president are elected. The interim constitution also provides for the protection of civil rights and private property.

8. The SCAF and the cabinet have both announced that their priorities are to ensure the security of people and to restore the economy. The cabinet proposed to the SCAF a law to introduce a ban on picketing with the aim of stopping protests and strikes that disrupt work.

9. After nearly a two-month closure the Egyptian stock exchange opened on March 23 for a three-hour session, which started, expectedly, with a drop of the main indices in the first two day. This was followed by a generally positive performance and a partial recovery of the losses. On April 3, the stock exchange resumed the normal four-hour session.

What’s going to happen?

While history suggests that revolutions are unpredictable, we expect the following to happen:
Protests will continue during the transitional period, but major ones will probably be limited to weekends. Many figures appointed by the former regime are still in executive positions, which is triggering protests to oust them. The SCAF and the cabinet have already started replacing personnel, but the process will take some time as the SCAF and the cabinet seek to avoid disrupting the operations of government.

Parliamentary elections are scheduled to take place in September, followed by presidential elections by the end of this year, whereupon the SCAF would transfer all powers to the elected bodies.
Within six months of being elected, the Parliament must appoint a committee to draft a new constitution, and this new constitution must be put to a national referendum by no later than September 2012.

The main political powers appear to agree on a civilian regime, limiting executive
powers, and the importance of boosting the economy by encouraging foreign investment and tourism. They are all cognizant of the major demographic demands for basic services and the need for investment in infrastructure. Egypt’s 82 million, half of which are under the age of 25, need numerous major infrastructure projects. 

What Does this Mean for Business?
It appears that all major political factions are in agreement on the importance of the role of private business in the new Egypt. Due to the financial stresses on Egypt’s budget, public-private projects that are necessary to serve the growing population require private investment. In recognition of this, the new government will almost certainly encourage and incentivize private investment and business.
While new projects are currently halted, and most bureaucrats are reluctant to exercise any discretionary powers, until the new president is in power, the PPP program is expected to regain momentum quickly thereafter. Egypt has a law on PPP and a dedicated PPP Unit, so there are strong expectations that when the tap is turned on there will be a significant flow of projects.

Meanwhile, the current strong public focus on transparency and fighting corruption and cronyism should benefit business moving forward. It seems reasonable to see a new democratic Egypt as an attractive location for business and FDI. Most of our clients are adopting a short term wait-and-see approach, but have declared themselves very interested in the country in the medium to long term.

April 2011
In recent interviews with the Egyptian press, the new Minister of Manpower in Egypt Dr. Ahmed El-Borai highlighted the outlines of the new Egyptian cabinet's policies on a number of employment related issues in Egypt.  

The most important points covered were:

Wages:

-There will be a minimum wage announced within the next 2-5 months as well as a mechanism whereby such minimum wage increases in line with the rate of inflation.

-The ministry is considering a new law that obliges employers and employees to conduct an annual salary review. Currently there is no system for a salary review in the law other than the obligation to grant an annual salary increase in the amount of 7% of social insurance basic salary (currently means a maximum increase of around EGP 60).

Foreign workers:

-Foreigners will not be allowed to work on tourist visas anymore. Consequently, any foreign national must follow strictly the law and finalize the work permit procedures prior to his entry to Egypt, or otherwise risk being deported.

-The Minister emphasized that any work that an Egyptian employee can perform; a foreigner will not be allowed to do in Egypt. The Minister focused attention on the textiles, tourism and petroleum sectors which contain a sizable number of foreign workers that ought to be replaced by the available Egyptian work force. It is not clear so far how the Ministry will decide whether a certain candidate has an Egyptian alternative or not. The Minister did indicate, however, that if a relevant job requires less than 6 months training, no foreigner will be granted a work permit to perform it. 

-Finally, after confirming that no Egyptian alternative is available, any foreigner must have two Egyptian assistants to be trained to replace the foreigner in order for him to get the work permit.

-The renewal of a foreigner's work permit will be allowed for up to 3 years rather than the previous 5 years.

-All current work permits will continue to be in force until they expire.

Employees Unions:

-The General Union of Labour syndicates no longer enjoys control over the labour syndicates. The General Union’s role is merely advisory from now on and the labour syndicates are each free to act as they please.  There will however no longer be government funds for any syndicate.

New law:

-The Minister indicated that a new employment law is under preparation but gave no indication as to when such law could come to light.