• Chapter 2 Chapter 2 Issuance of Debt Securities

    • 1. General

      1.1 This Chapter sets out the procedures and requirements for applications for the issuing and offering of Debt Securities (other than selectively marketed securities), whether by new applicants or by existing listed issuers.
      1.2 In order to allow the Agency sufficient time to consider an application for issuing and offering on the basis of its supporting documents and to maintain an orderly new issues market, a new applicant must normally apply in advance to the Agency at the earliest possible opportunity and normally not less than 30 business days prior to the date of issuance or offering.
      1.3 The application form must be prepared in accordance with BMA regulations and reviewed before submission by a professional body for the approval of the prospectus and other issuing and offering documents.
      1.4 The application form must also contain a draft of the expected timetable.
      1.5 If it is not possible to submit documents with the Agency within these time limits, they should be submitted as soon as they become available.
      1.6 Issuers should appreciate that any significant delay in submitting the documents may affect the issuing and offering timetable.
      1.7 In the case of Debt Securities issued or guaranteed by the Government of the Kingdom of Bahrain or by state corporations incorporated in Bahrain, the Agency will take into consideration information already available to the public in deciding on the application of these requirements.

      This principle may also apply to Debt Securities issued by other governments and their agencies and corporations, unless otherwise stated or required by the Agency from time-to-time.

    • 2. Eligible Issuer

      2.1 An issuer that is a Bahraini issuer must be a company within the meaning of Article 138 of the Commercial Companies Law (21/2001) which states that: the ordinary general assembly of both the public and closed joint stock companies (in which the Government or any other public entity owns at least 30% of capital), may decide, by a resolution, to borrow by issuing Debt Securities upon a recommendation by the board of directors showing the extent to which the issuer needs to borrow and the conditions of issuing these Debt Securities. The issuer shall obtain the approval of the Bahrain Monetary Agency if the Debt Securities are denominated in foreign currency or denominated in local currency but shall be offered for subscription in international markets.

      The general assembly may authorize the board of directors to select the issue date, provided that the issue shall be made within the two years following the date of the resolution. The Ministry of Finance and National Economy must approve the issuer's borrowing by issuing Debt Securities. However, the Bahrain Monetary Agency shall be the competent authority if the issuer is one of those subject to its supervision.
      2.2 The non-Bahraini issuer and the guarantor, in the case of a guaranteed issue, shall each be duly incorporated, or otherwise established, under the laws of the place where they are incorporated, or otherwise established, and must be in conformity with those laws and its Memorandum and Articles of Association or equivalent documents.
      2.3
      (a) A new applicant or the guarantor, in the case of a guaranteed issue, shall have produced audited financial statements, referred to under Articles (140) and (143) of the Commercial Companies Law, in accordance with the International Financial Reporting Standards or other accounting standards acceptable to the Agency covering at least the last 2 financial years preceding the application date.
      (b) In the case of a new applicant, if the period since the last financial year of audited financial statements exceeds 15 months at the time of the offering, interim period financial statements, which may be unaudited but reviewed by external auditors, as compared with the same period in the previous financial year, shall also be provided.
      2.4 Subject to l of the Commercial Companies Law, the financial statements shall be audited to a standard comparable to that required by the International Auditing Practices Committee of the International Federation of Accountants.
      2.5 Subject to Article (140) of the Commercial Companies Law, the issuer shall not issue Debt Securities unless the issued capital is fully paid-up and financial statements are published for at least the previous 2 financial years unless such Debt Securities are guaranteed by the Government or otherwise directed by the Agency.
      2.6 Without prejudice to the generality of Article (160) of the Commercial Companies Law, the issuer shall maintain a paying agent at an address in the Kingdom of Bahrain until the date on which no Debt Securities are outstanding unless the issuer performs that function himself.

    • 3. Basic Conditions

      3.1 Without prejudice to the generality of Article (146) of the Commercial Companies Law, the Debt Securities for which Agency approval is sought shall be issued in conformity with the law of the place where the issuer is incorporated or otherwise established and in conformity with the issuer's Memorandum and Articles of Association or equivalent documents, and all authorisations needed for their creation and issue under such law or documents must have been duly submitted.
      3.2 Subject to Article (139) of the Commercial Companies Law, the Debt Securities shall be in registered form, having equal par value in each issue. Debt Securities of the same issue shall confer upon their holders' equal rights towards the issuer and every condition to the contrary shall be null and void.
      3.3 Subject to Article (139) of the Commercial Companies Law, the Debt Securities for which public offering and listing is sought shall be freely transferable.
      3.4 Pursuant to Article (147) of the Commercial Companies Law, a Debt Securities holder shall have the right to receive an interest or income at certain times and also to receive the nominal value upon its maturity. Further, the issuer may issue Debt Securities for which the return shall be a share of the annual profits made by the issuer.
      3.5 Subject to Article (148) of the Commercial Companies Law, the issuer may issue discount Debt Securities that may be sold at its redemption value at the time of issuance.
      3.6 Without prejudice to the generality of Article (152) of the Commercial Companies Law, Debt Securities to which options, warrants or similar rights to subscribe or purchase equity securities or Debt Securities are attached, must also comply with the requirements applicable to such options, warrants or similar rights.

    • 4. Additional Requirements or Exceptions

      Pursuant to Articles (138), (141) and (143) of the Commercial Companies Law, the following conditions and exceptions to the qualifications for the issuance, offering and listing apply to the Debt Securities listed below:

      4.1 Islamic Private Debt Securities:
      4.1.1 In relation to Islamic Private Debt Securities that come within the scope of these Guidelines, the issuer must appoint either:
      a) An independent Sharia adviser or committee who has been approved by the Agency, in case of an issuer who does not have an existing Sharia advisor or committee.
      b) An Islamic bank or a licensed institution approved by the Agency to carry out Islamic banking to advise on all aspects of the Islamic Private Debt Securities, including documentation, structuring, investment as well as other administrative and operational matters in relation to these securities.
      4.1.2 Any Sharia principle and concept adopted in order to structure Islamic Private Debt Securities must be based on such principles and concepts as accepted by the Agency.
      4.2 Asset-backed Securities:

      For the purpose of these Guidelines, Asset-backed Securities include Mortgaged-backed Securities (certificates).
      4.2.1 The issuer must normally be a single purpose undertaking. The requirement to be a single purpose undertaking does not preclude the addition to the pool of further assets during the life of the securities. Furthermore, other classes of Debt Securities may be issued by the undertaking, backed by separate pools of similar assets.
      4.2.2 The audited financial statements requirements for previous years statements (referred to in 2.3(a); (b) and 2.4) do not apply to issuers of asset-backed securities.
      4.2.3 Where an issue of asset-backed securities is backed by equity securities, those securities must be listed and/or traded on a stock exchange; the equity securities must represent minority interests in and must not confer legal or management control of the companies issuing the equity securities; where options or conversion rights relating to equity securities are used to back an issue, these requirements apply in respect of the securities resulting from the exercise of those options or rights; and
      4.2.4 There must be a trustee or other appropriate independent party representing the interests of the holders of the asset-backed securities and with the right of access to appropriate, timely information relating to the assets.
      4.2.5 Subject to Article (156) of the Commercial Companies Law, if the issuer issues Debt Securities guaranteed by mortgages on its property or any other collaterals, the legal procedures for mortgage shall be undertaken in favour of the debtholders or a trustee representing them before offering the Debt Securities for subscription. The issuer itself shall undertake such procedures or they may be undertaken by the party presenting the guarantee, if it is presented by a party other than the issuer. The issuer shall, within a period not exceeding one month from the closing date of subscription, take the necessary measures to enter the loan value together with all related details in the register in which the mortgage has been entered.
      4.3 Convertible Debt Securities:

      Subject to Articles (149) and (150) of the Commercial Companies Law, the issuance, offering and listing of Convertible Debt Securities is subject to the following additional requirements or exceptions.
      4.3.1 All Convertible Debt Securities must, prior to the issue thereof, be approved by the Agency and the Agency should be consulted at the earliest opportunity as to the requirements which will apply.
      4.3.2 All Convertible Debt Securities which are convertible into new equity securities or outstanding securities of the issuer or a company in the same group as the issuer for which an issuance, offering and listing is to be sought must comply both with the requirements applicable to the Debt Securities for which an issuance, offering and listing is sought and with the requirements applicable to the underlying equity securities to which such Convertible Debt Securities relate. In the event of any conflict or inconsistency between the various requirements, those applicable to such equity securities shall prevail.
      4.3.3 Convertible Debt Securities which are convertible into property, other than equity securities, may be listed only if the Agency and the Exchange are satisfied that holders have the necessary information available to form an opinion concerning the value of the other property to which such convertible Debt Securities relate. This principle does not apply to an issue of convertible Debt Securities by a state or a supranational.
      4.3.4 Any alterations in the terms of Convertible Debt Securities after issue must be approved by the Agency, except where the alterations take effect automatically under the existing terms of such convertible Debt Securities.
      4.3.5 Subject to Article (150) of the Commercial Companies Law, the issuer's shareholders shall have priority right to subscribe for the Convertible Debt Securities if they express their desire to do so within a period not exceeding 15 days from the date of calling them to exercise such right. The shareholder may use his priority to subscribe for such Debt Securities in excess of his share in the issuer's capital if the offered Debt Securities allow this.
      4.4 States and Supranationals:
      4.4.1 Copies of all enabling Governmental or legislative laws, authorizations, consents or orders must be submitted with the Agency.

      However, the requirements for submission of the following documents do not apply:
      i. Certificate of incorporation or equivalent document.
      ii. Memorandum and Articles of Association.
      iii. Annual financial statements.
      iv. The resolutions of the issuer at the general meeting authorizing the issue of the Debt Security.
      v. The resolution(s) of the board of directors.
      vi. Notice(s) of shareholders meeting.
      vii. Any other documents that are required which are not applicable to the issuing and offering of Debt Securities issued by States and Supranationals.
      4.5 State Corporations:
      4.5.1 The Agency will not normally require an accountants' report in relation to an issuing and offering of Debt Securities issued by a State corporation incorporated or otherwise established in Bahrain. In such case, the latest audited financial statements, which must relate to a financial period ended not more than 15 months before the date the document is issued, should be included in or appended to the issuing and offering document.
      4.5.2 The Agency will not normally be prepared to approve the issuance of Debt Securities issued by a State Corporation incorporated or otherwise established outside Bahrain where the latest financial period reported on by the external auditors exceeds 15 months before the date of the issuing and offering document, unless reviewed interim financial statements relating to a period ended not more than 9 months before the date of the issuing and offering document are included in the document and appropriate evidence is given to the Agency that there has been no material adverse change in the financial condition of the issuer or the guarantor, in the case of a guaranteed issue, since the end of the period last reported on by the external auditors.
      4.5.3 The requirement of submission of the following documents does not apply to the Debt Securities issued by a State Corporation.
      (a) Certificate of incorporation or equivalent document of the issuer and guarantor, in case of a guaranteed issue.
      (b) Certificate entitling the issuer and the guarantor, in the case of guaranteed issue, to commence business.
      (c) Notice(s) of shareholders meeting.
      4.6 Banks and Financial Institutions:
      4.6.1 The Agency will not normally be prepared to approve the application of issuing, offering and listing of Debt Securities issued by a bank or financial institution, where the latest financial period reported on by the external auditors exceeds 15 months before the date of the application, unless reviewed interim financial statements relating to a period ended not more than 5 months before the date of the issuing and offering documents are included in the application and appropriate evidence is given to the Agency that there has been no material adverse change in the financial condition of the issuer or, in the case of a guaranteed issue, the guarantor since the end of the period last reported on by the external auditors.
      4.7 Overseas Issuers:
      4.7.1 The issuance, offering and listing Guidelines apply as much to overseas issuers as they do to local issuers, subject to the additional requirements, modifications or exceptions set out or referred to below herewith.
      4.7.2 Overseas issuers are encouraged to contact the Agency if they envisage any difficulties in complying fully with the relevant requirements.
      4.7.3 The following additional requirements apply:—
      (a) the Agency reserves the right, in its absolute discretion, to refuse any issuing, offering or listing application of Debt Securities of an overseas issuer if:—
      (i) it believes that it is not in the public interest to approve such application; or
      (ii) the overseas issuer's equity capital does not have a primary listing on the exchange, and it is not satisfied that the overseas issuer is incorporated or otherwise established in a jurisdiction where the standards of securities holders' protection are at least equivalent to those provided in Bahrain; and
      (b) in the case of registered securities, provision must be made for a register of holders to be maintained in Bahrain, or such other place as the Agency may agree, and for transfers to be registered locally. The Agency may, however, consider an alternative proposal for registering transfers for holders in Bahrain, in exceptional circumstances.
      4.7.4 The following modifications apply:—
      (a) The references in the Guidelines to "Directors" should be read as references to members of the overseas issuer's governing body;
      (b) The issuing and offering documents must be signed by two members of the governing body of the overseas issuer or guarantor, in the case of a guaranteed issue, or by their agents authorised in writing rather than signed by or on behalf of every director or proposed director; and
      (c) The declaration to be submitted to the Agency may require adjustment by virtue of the laws to which the overseas issuer is subject and may be signed by a director's and secretary's agent, authorised in writing, rather than by a director and the secretary.
      4.7.5 The Agency may be prepared to agree modifications to the Listing Agreement as it considers appropriate in a particular case. In particular, in the case of an overseas issuer whose primary listing is on another regulated stock market recognised by the Agency, the Agency may accept a Listing Agreement which incorporates equivalent continuing obligations to those imposed by that other stock market.
      4.7.6 Conversely, the Agency may impose additional requirements in a particular case. In particular, if the overseas issuer's equity capital has or is to have a primary listing on the exchange, the Agency may impose such additional requirements as it considers necessary to ensure that investors have the same protection as that afforded to them in Bahrain.
      4.7.7 Attention is particularly drawn to the obligations regarding the circulation and contents of annual financial statements and accounts to ensure simultaneous release of information to other exchanges and to the market in Bahrain.
      4.7.8 Attention is particularly drawn to the requirement for the external auditor to be independent both of the overseas issuer and of any other company concerned.
      4.7.9 A financial statement will not normally be regarded as acceptable unless the relevant statements have been audited to International Financial Reporting Standards (IFRS), or a standard acceptable to the Agency.
      4.7.10 Financial statements in respect of overseas issuers are required to conform with accounting standards acceptable to the Agency which will normally be at least the IFRS as promulgated from time-to-time by the International Accounting Standards Committee. The relevant standards will normally be those current in relation to the last financial year reported on and, wherever possible, appropriate adjustments should be made to show profits for all periods in accordance with such standards.

      Where the Agency allows reports to be drawn up otherwise than in conformity with accounting standards set by the International Accounting Standards Committee, the Agency may, having regard to the jurisdiction in which the overseas issuer is incorporated or otherwise established, require the report to contain a statement of the financial effect to the financial statements of the use of accounting standards other than IFRS.
      4.7.11 Where the figures in the report differ from those in the audited annual financial statements, a statement of adjustments must be submitted to the Agency enabling the figures to be reconciled.

    • 5. Submission of Application and Documents

      Subject to Articles (143) and (149) of the Commercial Companies Law, any issuer of Debt Securities who wishes to issue, offer for subscription or purchase, or make an invitation to subscribe for or purchase Debt Securities, must seek the Agency's approval by complying with the requirements laid down in these Guidelines, as well as any other Agency requirements on the issuing, offering or listing of Debt Securities with the submission of an application to the Agency.

      The application for approval must, in addition to the abovementioned requirement, include the following attachments:—
      1. Two copies of the initial prospectus (Appendix 1).
      2. Two copies of lists of information to be submitted for the purpose of obtaining the Agency's approval (Appendix 2).
      3. A copy of the constituent documents, such as the Memorandum and Articles of Association, or equivalent documents.
      4. A copy of any other required regulatory approvals.
      5. A description of the structure of the securitisation transaction.
      6. The preliminary rating report, if available or required by other authorities.
      7. A legal opinion as to whether the true sale criteria have been met.
      8. A valuation report of no more than six months age by independent, registered valuers in the event that the assets which are the subject matter of a securitisation transaction include real property.
      9. Compliance checklist on the Agency's Debt Securities Guidelines by principal advisers.
      10. All duly executed declarations as required by these Guidelines.

    • 6. Subsequent Events

      Any changes in that timetable referred to under 1.4 of this Chapter shall also be agreed in advance with the Agency.

    • 7. Timeframe for Agency's Approval

      7.1 The Agency will give its approval within 30 business days for a new applicant, and 15 business days for existing listed issuers, from the date of receipt of all declarations, complete information and documentation required under these Guidelines.
      7.2 The Agency's approval must be in written form.
      7.3 The Agency retains absolute discretion to accept or reject applications for issuing, offering or listing and that compliance with the relevant conditions may not in itself ensure an applicant's suitability for issuing and listing.