Finance – Page 3 – Hammad & Al-Mehdar Law Firm

Saudi Arabia’s Entry into BRIC: Implications for Trade, Economy, and Legal Dynamics

Posted on August 28, 2023 - 4:49 pm by perpetual-admin

The world of international economics and geopolitics is constantly in flux, driven by shifting alliances, economic growth, and evolving global dynamics. In this ever-changing landscape, the concept of the BRIC region has emerged as a significant force that has captivated the attention of economists, policymakers, and businesses alike. Originally consisting of Brazil, Russia, India, and China, the BRIC group has now expanded to include Saudi Arabia, the UAE, Egypt, Iran, Ethiopia, and Argentina. This expansion marks a momentous development that holds implications for global trade, energy, and cooperation. To truly understand the implications of Saudi Arabia’s entry into the BRICS group, it’s essential to delve into the origins and characteristics of the BRIC region itself.

BRIC’s Impact and Evolution

Over the years, the BRIC nation’s economies flourished, propelling them into the top echelons of the world’s economic hierarchy. China and India, in particular, showcased unprecedented growth rates and became manufacturing and technology powerhouses, respectively. Russia’s vast reserves of energy resources positioned it as a key player in global energy markets, while Brazil’s agricultural and natural resource wealth contributed to its economic prowess. The BRIC countries began to exert significant influence in global political forums, advocating for reforms in international financial institutions and seeking a more prominent role in global decision-making processes.

Increased Middle Eastern Footprint across the BRICS

The inclusion of five Middle Eastern nations as new members of BRICS starting from January 1, 2024, marks a significant shift in the dynamics of the global economic and geopolitical landscape, with far-reaching implications for the MENA (Middle East and North Africa) region. This move reflects these Middle Eastern countries’ growing economic prowess and strategic influence, highlighting their aspiration to be more substantial in shaping global policies and decisions. As BRICS seeks to promote economic cooperation, trade, and investment among its members, including these Middle Eastern nations, underscores their determination to diversify their economies beyond oil dependence and engage in broader international partnerships. This shift could potentially lead to increased stability in the MENA region, as it encourages dialogue, cooperation, and shared development goals among nations with varying cultural and political backgrounds.

Saudi Arabia’s Role in BRICS: A Game Changer

The BRIC grouping, initially comprising Brazil, Russia, India, and China, emerged as a compelling force in global economics. With Saudi Arabia’s inclusion, the newly formed BRICS bloc gains enhanced geopolitical and economic influence. Saudi Arabia’s substantial oil reserves and strategic location provide BRICS with a valuable energy resource and a gateway to the Middle East, strengthening the collective bargaining power of the group.

Trade and Economic Implications

Oil Production and Energy Dynamics:

Saudi Arabia’s oil production prowess, contributing *11.9% to global oil output, significantly impacts the energy market dynamics within BRICS. The country’s vast reserves can contribute to energy security and stability for the member nations, potentially mitigating supply shocks and price fluctuations. Additionally, this collaboration opens avenues for joint ventures in renewable energy technologies, diversifying the energy portfolio of the entire bloc.

Trade and Investment Opportunities:

With its position as a global energy hub, the nation can facilitate energy exports to the other members, ensuring a steady flow of resources while benefiting from their expertise in diverse sectors such as technology, manufacturing, and services. This cross-fertilisation of industries can lead to accelerated economic growth and technology transfer, bolstering the economic prospects of all BRICS nations, including Saudi Arabia.

Economic Diversification:

For Saudi Arabia, the BRICS association presents an opportunity to accelerate its Vision 2030 economic diversification agenda. Collaborations in sectors beyond oil, such as finance, technology, and agriculture, can reduce the country’s dependence on oil revenues, thereby promoting sustainable economic growth and stability.

Legal Considerations for Businesses

Trade Agreements and Regulations:

Businesses operating within the expanded BRICS region must familiarise themselves with the trade agreements and regulations that come with Saudi Arabia’s inclusion. This involves understanding the implications of tariff changes, import/export regulations, and compliance standards that may affect their operations.

Investment Laws and Intellectual Property:

Saudi Arabia’s legal framework for foreign investments and intellectual property rights might differ from other BRICS members. Companies looking to invest or establish a presence in the Saudi market must navigate these legal intricacies to ensure smooth operations and protect their intellectual property assets.

Dispute Resolution Mechanisms:

As business collaborations intensify within the expanded BRICS bloc, the need for effective dispute-resolution mechanisms becomes crucial. Businesses should be aware of the available avenues for resolving disputes, including arbitration and mediation, to safeguard their interests and maintain a conducive environment for international trade.

Saudi Arabia’s integration into BRICS marks a significant turning point for the global economy. The inclusion brings together diverse economies and industries, enabling collaborations that could redefine trade, energy dynamics, and economic growth. As businesses seek to capitalise on the opportunities arising from this transformation, a thorough understanding of legal considerations is paramount to navigating the complexities of international trade and investment. The expanded BRICS bloc, with Saudi Arabia at its core, has the potential to reshape the world economy and foster a new era of cooperation and prosperity.

*Source: IMF, World Trade Organisation

The Fintech Landscape in the Kingdom of Saudi Arabia

Posted on July 23, 2023 - 12:06 pm by perpetual-admin

Over the past few years, the Kingdom of Saudi Arabia has emerged as a significant player in the financial technology (fintech) sector. Recognising the potential of fintech to transform the financial landscape, the Saudi Central Bank (SAMA) and the Capital Market Authority (CMA) launched Fintech Saudi in April 2018. Fintech Saudi operates under the Financial Sector Development Program (FSDP) and is dedicated to fostering the growth of the fintech industry in the Kingdom.

One of the pivotal steps the regulatory authorities took was the establishment of a regulatory sandbox. This sandbox allows fintech companies and banks to test and certify their products in a secure and controlled environment. Since its inception, the regulatory sandbox has enabled fintech businesses to develop and thrive in the Kingdom.

SAMA and CMA have significantly progressed in developing fintech regulations and licensing frameworks. They have introduced new fintech licenses and experimental sandbox licenses, which have provided fertile ground for fintech companies to flourish. Initiatives such as the Fintech Accelerator Program, the Fintech Ecosystem Directory, and the Fintech Job Portal have further supported the growth of the Fintech sector in the Kingdom. Additionally, Fintech Saudi has undertaken the Fintech Data & Research Initiative and the Fintech Regularity Assessment Tool to enhance transparency in Fintech data and regulations.

As a result of these efforts, the fintech ecosystem in Saudi Arabia has experienced rapid growth. The number of fintech businesses has increased by an impressive 14.7 times since the launch of Fintech Saudi. By the end of 2022, there were 147 fintech businesses registered with Fintech Saudi, and investments in fintech companies had reached SAR 1,508.4 million ($401.56 million).

Open banking has been a significant driver of fintech growth in the Kingdom. Open banking lets Customers securely share their financial data with third-party fintech companies. This data access enables fintech firms to offer innovative financial products and services, allowing customers to manage multiple accounts and conduct transactions from a single dashboard.

To support open banking, SAMA introduced the Open Banking Lab in 2022. This sandbox environment allows banks and fintech businesses to experiment with their product offerings and ensure compliance with the Open Banking Framework. The Open Banking Framework, released by SAMA in November 2022, comprises legislation, regulatory guidelines, and technical standards that enable banks and fintech companies to provide open banking services to customers in Saudi Arabia.

In January 2020, SAMA introduced the Payment Service Provider Regulations (PSP Regulations) to oversee the operations of PSPs within the Kingdom. These regulations encompass various payment services, including direct debits, credit transfers, payment execution, electronic money issuance, etc. The PSP Regulations are modelled on the European Union’s Payment Services Directive, making it easier for international PSPs to establish operations in Saudi Arabia.

Introducing the PSP Regulations led to a surge in the PSP industry in Saudi Arabia. The establishment of Saudi Payments (SADAD) and the launch of Apple Pay contributed to a significant increase in smartphone payment transactions in the Kingdom. From 9 million transactions in 2019, the number of transactions skyrocketed to 54 million in 2020 and 128 million in 2021, as SAMA’s April 2022 Bulletin reported.

The Kingdom has also made notable strides in digital banking. The Council of Ministers approved digital banking licenses for STC Bank and the Saudi Digital Bank in June 2021, followed by the approval of a third bank, D360, in February 2022. These three banks are the first digital-only banks in Saudi Arabia, offering low-cost customised services to customers by leveraging data collection and analysis.

Furthermore, crowdfunding has seen significant developments, particularly with SAMA’s introduction of rules for debt-based crowdfunding in January 2021. Reward-based crowdfunding is exempt from licensing requirements.

Although the Kingdom has been receptive to emerging technologies like blockchain, it exercises caution about crypto-based businesses due to the high volatility and lack of supervision in cryptocurrency markets. SAMA conducted a joint initiative with the central bank of the United Arab Emirates called Project Aber to explore the viability of a dual-issued digital currency. While trading in cryptocurrency remains restricted, a survey by the KuCoin exchange revealed that three million Saudis either own cryptocurrencies or have traded them in the past.

Saudi Arabia’s fintech landscape is evolving rapidly, driven by a proactive regulatory approach, innovative initiatives, and growing investments. The Kingdom’s commitment to fostering the fintech sector will likely attract more businesses and drive further advancements in the financial technology industry. As fintech continues to gain traction, it is set to play a pivotal role in shaping the future of Saudi Arabia’s financial services.

Empowering Fintech: A Comprehensive Look at Funding and Regulatory Landscape in Saudi Arabia

Posted on July 23, 2023 - 12:04 pm by perpetual-admin

The Kingdom of Saudi Arabia has made significant strides in fintech in recent years. As part of its broader push towards a cashless economy, the government has introduced supportive regulations and funding mechanisms to stimulate innovation and investment in the financial technology space. This article delves into the funding options available to fintech companies, the regulatory environment, and the key initiatives fostering the growth of fintech in Saudi Arabia.

Funding for Fintech Companies

In the Kingdom, equity and debt financing avenues are open to businesses. However, the Finance Companies Control Law strictly governs financing activities, and any entity wishing to engage in financing activities must obtain a license from the Saudi Arabian Monetary Authority (SAMA). Shareholders of financing companies must adhere to Shariah requirements and organise themselves as joint-stock companies.

The Capital Market Authority (CMA) has issued rules and regulations to accommodate crowdfunding businesses for equity crowdfunding. Five companies have received experimental licenses from the CMA to test their equity crowdfunding models. Successful trials may lead to the issuance of permanent crowdfunding licenses.

On the other hand, debt crowdfunding is regulated by SAMA’s Updated Rules for Engaging in Debt-Based Crowdfunding, which mandates entities to obtain the required licensing. A minimum capital requirement of SAR 5 million is necessary for obtaining the crowdfunding license, which SAMA may adjust based on market conditions.

Saudi Arabia’s Commitment to Fintech

The Kingdom’s dedication to fostering fintech innovation is evident through the Financial Sector Development Program (FSDR). In May 2022, the Council of Ministers approved the Kingdom’s Fintech Strategy, a vital component of the FSDR, aiming to establish 525 Fintech businesses by 2030. The strategy focuses on talent nurturing, improving regulatory landscapes, and encouraging collaboration among local and international fintech players.

Tax Schemes and IPO Opportunities

The Kingdom’s tax policies favour fintech start-ups, particularly local companies. Zakat, Tax, and Customs Authority (ZATCA) impose a 2.5% zakat on local companies’ enterprise value and a 20% tax on foreign companies’ generated revenue. Local shareholders and Gulf Cooperation Council nationals enjoy favourable tax treatment.

Approval from the CMA is mandatory for fintech companies considering an initial public offering (IPO). The CMA governs the offering of securities through the Saudi Stock Exchange (Tadawul) and the Nomu-Parallel Market. Companies seeking listing on Tadawul must fulfil specific criteria, such as being organised as joint-stock companies, having at least three years of operation under the same management, and offering at least 30% of shares to the public.

Regulatory Framework for Fintech

Fintech companies in Saudi Arabia are regulated by various authorities, including the CMA, SAMA, and the Communications and Information Technology Commission (CITC). While specific regulations for cryptocurrencies and crypto assets are yet to be introduced, SAMA has explored distributed ledger technology through Project Aber.

Regulatory Sandboxes: Facilitating Innovation

SAMA and CMA offer fintech businesses the opportunity to operate within regulatory sandboxes. These sandboxes allow companies to test their technologies and services live while the relevant regulations are being developed. This collaborative approach has already led to the introduction of regulations for debt-based crowdfunding, payment service providers, and Open Banking.

Challenges and Data Privacy

Foreign fintech companies may face challenges entering the Saudi market due to the requirement for a local presence during the trial period within the regulatory sandboxes. However, introducing the Personal Data Protection Law (PDPL) offers greater protection to data privacy. The PDPL applies to all businesses processing data in Saudi Arabia, including foreign entities processing data related to Saudi residents.

Saudi Arabia’s commitment to becoming a fintech hub is evident through its supportive funding mechanisms, regulatory sandboxes, and dedication to data privacy. The government’s focus on nurturing talent and encouraging collaboration between local and international players bodes well for the growth and innovation in the fintech sector. With a robust regulatory framework and favourable tax policies, the Kingdom is paving the way for a vibrant and dynamic fintech ecosystem.

Accessing Talent: Navigating Employment and Intellectual Property in Saudi Arabia’s Fintech Sector

Posted on July 23, 2023 - 12:01 pm by perpetual-admin

In the ever-evolving landscape of the fintech industry, the Kingdom of Saudi Arabia has emerged as a dynamic player, attracting businesses from across the globe. As fintech ventures expand, accessing talent from both local and international markets becomes crucial for sustaining growth and innovation. However, businesses must understand the legislative framework governing employment and intellectual property (IP) in the Kingdom to operate successfully. This article will explore the regulations surrounding talent acquisition and the protection of innovations in Saudi Arabia’s fintech sector.

Saudi Arabia’s employment regulations are governed by the Labour Law, which covers all aspects of employment, including recruitment, termination, employment contracts, and hiring non-Saudi employees. All employees must be registered with the Ministry of Human Resources and Social Development (MHRSD) for a smooth hiring process. On the other hand, foreign employees must obtain work and residence permits under their employer’s sponsorship.

Employment contracts can be fixed-term, indefinite-term, or project-based, depending on the nature of the work. In termination cases, employers must provide notice periods: 30 days for fixed-term contracts and 60 days for indefinite-term contracts. In the event of unfair dismissal, employees are entitled to severance payments.

Saudization: Encouraging Local Talent:

Saudi Arabia’s Saudization initiative is a nationalisation program that encourages businesses to hire a certain percentage of Saudi nationals in qualified positions. This initiative aims to boost local employment and create opportunities for the local workforce in the fintech sector.

Mandatory Employment Benefits:

The Labor Law mandates several benefits for employees in Saudi Arabia, including health insurance, paid vacation (increasing to 30 days after five years of employment), reduced working hours during Ramadan, observance of public holidays, and end-of-service benefits based on the employee’s last wage and length of employment.

Accessing Foreign Talent:

Hiring foreign talent in Saudi Arabia requires adherence to specific requirements set by the MHRSD and the Ministry of Interior. Foreign employees must have entered the country legally and be authorised to work. They must also have an employment contract with a local employer under the employer’s sponsorship. Moreover, the foreign employee must possess the necessary qualifications and skills not readily available among the Saudi workforce.

When the employment relationship concludes, employers hiring foreign employees are responsible for the associated recruitment fees, including work and residence permits and exit procedures.

Protecting Innovations and Intellectual Property:

Safeguarding innovations and intellectual property is paramount for fintech businesses in Saudi Arabia. Here are the critical methods of protection:

Patents: Innovators can apply for a patent for exclusive protection for their inventions for up to 20 years, provided the invention is new, innovative, and industrially applicable. However, certain items like business practices, mathematical algorithms, and computer codes may not be eligible for patent protection.

Copyrights: Saudi Copyright Law protects computer programs, software, and audio-visual works without registration. The Saudi Authority for Intellectual Property (SAIP) recently introduced an optional registration service for computer software and applications.

Trade Secrets: Fintech businesses can protect innovative codes and programs as trade secrets to prevent unauthorised usage.

Trademarks: Registering trademarks enables businesses to protect their brand names and identity.

Ensuring Ownership of Intellectual Property:

In Saudi Arabia, the ownership rights for patents typically lie with the inventor. For copyrights, the author is usually the owner unless the work is created during employment, in which case the employer becomes the beneficiary. Trademarks, on the other hand, belong to the applicant who filed for registration.

To safeguard their IP, fintech businesses should include specific provisions in employment contracts, agreements with contractors, and confidentiality clauses to protect sensitive information and trade secrets.

The International Landscape:

Saudi Arabia is a member of various international treaties and conventions that govern intellectual property rights, such as the TRIPS Agreement, the Berne Convention, and the Paris Convention. These treaties provide territorial rights, meaning IP protection requires registration within the Kingdom.

As Saudi Arabia’s fintech sector continues to flourish, accessing talent and protecting innovations remain vital considerations for businesses operating in the Kingdom. Complying with the Labor Law and Saudization requirements ensures a smooth and compliant recruitment process while understanding the various methods of IP protection empowers businesses to safeguard their creations and investments. By embracing these aspects, fintech ventures in Saudi Arabia can truly thrive and make their mark in the rapidly evolving world of financial technology.

GP Fiduciary Duties

Posted on July 10, 2023 - 10:26 am by perpetual-admin

When it comes to private equity funds, in common fund domiciliation jurisdictions seen in our region, the general partner (GP) has a fiduciary duty towards the fund and the limited partners (LPs). This duty is crucial, legally enshrining the fundamentals of trust and pursuant to which the GP is required to carry out its powers and authorities absent significant oversight from the LPs and in some instances, capital market regulators. However, courts tend to apply the fiduciary standards in a both objective and subjective manner, which means that GPs and legal counsel must give great attention to the limited partnership agreement (LPA) drafting to shape the fiduciary duties by the contractual arrangement and help examining courts in their assessments, and to understanding the details of how such duties may be carried out through the activities of the GP. This article discusses the common tenors of the fiduciary duty placed on GPs in respect of investment funds.

The first tenor of the fiduciary duty is the duty of loyalty, which is a fundamental obligation that GPs owe to LPs in funds they manage. This duty requires GPs to act in the best interests of the fund and its LPs, and to avoid any conflicts of interest that could compromise their ability to do so. One way to manage conflicts of interest is to clearly set out transactions and potential dealings that involve such conflicts in the fund documents. Such disclosure to LPs allows them to make an informed decision about whether to approve such transactions by investing in the fund and accepting its documents. The inclusion of a provision that requires advisory committee (LPAC) approval for all conflicts of interest may not be enough to fully address the concerns of LPs. LPs may still challenge transactions and argue that the GP did not act in their best interests, potentially leading to a breach of fiduciary duty claim, resulting in damages, and possibly grounds for cause GP removal. To mitigate this risk, clauses relating to conflicts of interest can be expanded to provide for a mechanism that counts LPAC approval as equivalent to LPs’ approval. This means that if the LPAC approves a transaction that involves a conflict of interest, the GP will be considered to have fulfilled its duty of loyalty to the LPs regarding the relevant conflict of interest. Such mechanism can help the GP demonstrate that it has taken the necessary steps to manage a conflict of interest through obtaining LP approval.

The second common tenor of the fiduciary duty is the duty to act in good faith. Such duty includes obtaining the LPs’ consent for changes to the fund that could materially impact the LPs interests. Naturally, such consent may prove difficult, hence GPs customarily consider adding a withdrawal provision in the LPA to permit the impacted LPs to withdraw from the fund if the GP proposes specific amendments materially adverse such LPs. This option bridges the gap between the GP’s duty to act in good faith and not harm certain LPs or class of LPs, and act for the benefit for the fund in its entirety.

In summary, GPs and legal counsel must pay close attention to the LPA drafting to ensure that the GP’s fiduciary duties are shaped by the contractual arrangement to help in how courts will interpret them should a dispute arise and to further provide clarity and transparency between the GP on one hand and the LPs on the other hand. Additionally, GPs should clearly set out all conflicts of interest transactions, and consider including a withdrawal option if specific amendments materially adverse certain LPs to ensure that they are acting in good faith and in the best interest of the fund. These measures can help mitigate potential challenges from LPs and ensure that GPs can carry out their powers and authorities effectively.

Post Covid in a Nutshell

Posted on July 9, 2023 - 12:34 pm by perpetual-admin

The COVID-19 pandemic had a significant impact on the funds market, with 2021 seeing record levels of funding and deal numbers. Funds were achieving their target size and even further reaching their hard caps (also known as the maximum fund size), indicating a strong appetite for investments in the market. However, this trend did not continue in 2022, with hard caps being rarely met. This shift in the market led General Partners (GPs) to explore new strategies to grow their assets under management (AUM) and meet their targets.

One of the strategies that GPs are increasingly using is offering co-investment opportunities at a record scale. This allows GPs to raise additional capital while also providing investors with an opportunity to co-invest in promising deals. Co-investing also allows GPs to share the risk with their investors, which can be an attractive proposition for LPs.

Another strategy that GPs are using is borrowing. Borrowing has traditionally been limited by a cap and a time constraint, but funds are increasingly allowing borrowing without a time limitation. The borrowing caps vary between funds, with some funds allowing as much as a 100% cap on borrowing. This flexibility in borrowing allows GPs to access additional capital quickly and can help them meet their investment or portfolio goals.

Recycling is another strategy that GPs are using to generate capital. Recycling allows GPs to reinvest capital returned from previous investments into new deals. There is a shift towards accepting the return of capital during the life of the fund, with a cap on the amounts to be recycled. This is different from the traditional approach of allowing recycling only 12 to 18 months from the return of capital.

In addition to these strategies, GPs are also focusing on differentiating themselves. This includes exploring different sectors such as healthcare, technology, and renewable energy, among others. GPs are also targeting different geographical regions, such as emerging markets, to generate capital. They are adopting different investment strategies, such as early-stage investing or value investing, and increasingly focusing on Environmental, Social, and Governance (ESG) factors in their investment decisions.

Overall, the funds market has undergone significant changes since the onset of the pandemic, and GPs are adapting by adopting new strategies such as co-investment, borrowing, and recycling to generate capital. However, the uncertainty of the market in 2023 suggests that GPs may need to continue exploring new strategies to ensure the success of their funds. The evolving nature of the funds market requires GPs to stay agile and adaptable to meet the needs of their investors and the market.

Unlocking the Potential of Project Financing in Saudi Arabia’s Energy Sector

Posted on May 2, 2023 - 9:59 am by perpetual-admin

Project financing has played a significant role in the development of the energy sector in Saudi Arabia. The Kingdom is a critical player in the global energy industry, and its vast oil and natural gas reserves have helped fuel economic growth for decades. In recent years, however, the Saudi government has recognized the need to diversify the country’s energy mix and reduce its reliance on fossil fuels. As a result, there has been a surge in investment in renewable energy projects, which has required innovative financing solutions.

Project financing is a method in which the lender provides financing for a specific project based on its expected cash flows rather than the borrower’s assets. This method of financing is often used in large infrastructure projects, such as those in the energy sector, where the risks and costs are high. In Saudi Arabia, project financing has become an increasingly popular method of financing energy projects, particularly those involving renewable energy sources.

The Saudi government has set ambitious targets for renewable energy development, with plans to generate 9.5 gigawatts of renewable energy by 2023 and 58.7 gigawatts by 2030. The government has launched several initiatives to achieve these targets, including the National Renewable Energy Program (NREP) and the Green Middle East Initiative, which aim to attract private sector investment in renewable energy projects.

One of the advantages of project financing is that it allows investors to spread their risks across multiple stakeholders. In the energy sector, this means that lenders can share the risks associated with the project developers, contractors, and other stakeholders. This approach can help reduce the project’, making it more attractive to investors.

Another advantage of project financing is that it provides a structured framework for managing the project’s cash flows. This is particularly important in the energy sector, where projects can have long lifetimes and complex cash flow structures. Project financing allows investors to manage these cash flows in a predictable and structured manner, which can help to mitigate the risks associated with the project.

In Saudi Arabia, project financing has been used to fund a range of energy projects, including solar and wind power plants and transmission and distribution infrastructure. For example, in 2018, the Saudi Arabian government signed an agreement with a consortium of international lenders to finance the 300 MW Sakaka solar project, which is expected to generate electricity for 75,000 households. The project is being developed by ACWA Power, a Saudi-based energy developer, and is one of the first utility-scale solar projects in the country.

Another notable project in Saudi Arabia is the Dumat Al Jandal wind farm, which is being developed by a consortium led by French energy company EDF Renewables. The project, which is expected to have a capacity of 400 MW, will be the country’s first utility-scale wind farm and is expected to generate electricity for up to 70,000 homes. The project is financed through a mix of equity and debt, with international lenders providing project financing.

Project financing is a complex process that requires careful consideration of various legal aspects. This is particularly true in Saudi Arabia, where the legal system is based on Islamic law, and local regulations can differ from those in other countries. This article will explore some critical legal aspects investors and developers should consider when seeking project financing in Saudi Arabia.

Contractual Frameworks

One of the most important legal aspects of project financing in Saudi Arabia is the contractual framework that governs the project. The contractual framework should clearly define the rights and obligations of all parties involved in the project, including the lender, borrower, and other stakeholders. It should also establish dispute resolution mechanisms in case of disagreements.

In Saudi Arabia, project agreements are typically governed by Saudi Arabian law, and ensuring that the contracts comply with local regulations is essential. Investors should also consider incorporating Shariah-compliant financing structures based on Islamic finance principles.

Security and Collateral

Another critical legal aspect of project financing in Saudi Arabia is the security and collateral required to secure the loan. Lenders typically require a range of security and collateral to protect their investment, including mortgages, pledges, and guarantees.

In Saudi Arabia, the legal system recognizes various forms of collateral, including real estate, movable assets, and shares in a company. Ensuring that the collateral is appropriate and enforceable under Saudi Arabian law is important. It is also essential to ensure that the collateral is sufficient to cover the loan in case of default.

Regulatory Compliance

Saudi Arabia has a highly regulated business environment, and project financing transactions are subject to various regulatory requirements. Investors and developers must comply with various laws and regulations related to foreign investment, taxes, and environmental protection.

Working with experienced legal advisors familiar with the local legal and regulatory environment is essential to ensure regulatory compliance. Before starting the project, investors and developers should also obtain all necessary licenses and permits.

Dispute Resolution

Disputes are an inevitable part of any project financing transaction, and it is essential to establish clear and effective dispute resolution mechanisms. In Saudi Arabia, disputes can be resolved through various methods, including arbitration, litigation, and mediation.

Arbitration is often preferred as it is more efficient and confidential than litigation. Investors should ensure that the dispute resolution mechanism is clearly defined in the contractual framework and complies with local regulations.

As the Kingdom progresses toward a more sustainable future, project financing in the energy sector will undoubtedly play a crucial role. By prioritizing the legal aspects of project financing, investors and developers can ensure that their renewable energy projects in Saudi Arabia are set up for success. With the right approach and partnerships, project financing in Saudi Arabia can unlock opportunities for growth, innovation, and long-term success in the energy sector.

However, investors and developers must know the various legal aspects of project financing in Saudi Arabia. This includes ensuring the contractual framework is transparent and complies with local regulations, providing sufficient collateral, and meeting all necessary regulatory requirements. Effective dispute resolution mechanisms must also be established to mitigate potential conflicts. Working with experienced legal advisors can help ensure a successful project financing transaction in Saudi Arabia.

Vision 2030 and the regulatory reforms on the horizon

Posted on March 23, 2022 - 6:38 am by perpetual-admin

Since its inception in 2016, Saudi Arabia’s Vision 2030 has been positioned as a transformative blueprint for the country’s future. And while there is no doubt that the plan — which aims to wean the economy off its dependence on oil and gas revenues and make the Kingdom a global investment powerhouse — will have a profound impact on virtually every sector of Saudi society, its legal implications are most far-reaching.

From the introduction of 5G and the accompanying increase in regulation to the need for businesses to embed new systems and ways of working, Vision 2030 is certain to have a major impact on Saudi law. Perhaps nowhere is this more evident than in the area of competition law, where the plan’s ambitious diversification and privatisation goals are likely to bring increased competition — and with it, the need for stricter enforcement.

With this in mind, here’s a closer look at some of the legal implications of Saudi Arabia’s Vision 2030.

5G & Regulation

The rollout of 5G networks is set to transform the way we live and work, and the Saudi government is keen to ensure that the country is ready for this next-generation technology. Abdullah Al-Sawahah, Minister of Communications and Information Technology, stated that “Saudi Arabia is determined to be a world leader in 5G to take early advantage of its benefits.”

To that end, the government announced in 2021, that they would designate the entire 6GHz radio band for unlicensed use. This is in line with global trends, as more countries are making large swaths of radio spectrum available for 5G deployment.

However, in order to ensure that the rollout of 5G in Saudi Arabia is done in a way that is safe and compliant with international standards, the government has also laid out a framework for telecoms companies. Under these new regulations, they must adhere to a number of strict security and privacy requirements and are advised of the need to develop disaster recovery plans and ensure that customer data is properly protected.

Information Security & Data Protection

With the rise of cloud computing and the increasing digitisation of society, the issue of information security and data protection is becoming increasingly important. The Saudi government has taken note of this trend and has introduced several regulations aimed at safeguarding consumer data.

Saudi Arabia’s Personal Data Protection Law was implemented by royal decree in 2021. This regulation sets out a number of strict requirements for businesses that process or store personal data.

Among other things, businesses must, in most cases, obtain prior consent from individuals before collecting, using, or sharing their data. They must also ensure that personal data is properly protected and take steps to ensure that any data breaches are promptly reported and resolved. The CITC has also published a set of guidelines on information security, which businesses are encouraged to adopt in order to protect themselves from cyber-attacks.

Competition Law

As Saudi Arabia moves away from its dependence on oil and gas revenues, the need for strong competition laws becomes increasingly important. This is especially true in the context of Vision 2030’s ambitious diversification plans, which are sure to bring new players into many sectors of the Saudi economy.

In late 2019, a new Competition Law was announced by Royal Decree. This new set of regulations is in line with international best practices and designed to ensure that businesses compete fairly, without resorting to anti-competitive practices such as price-fixing, bid-rigging, and illegal market manipulation.

The General Authority for Competition (GAC) has begun to increase its enforcement of competition law in recent years, and this is likely to continue as the Saudi economy becomes more competitive. In 2021, the GAC blocked its first transaction during a merger, signalling a new era of tougher enforcement.

“Competition filing has been a standard part of acquisition and investment transactions relating to Saudi Arabian companies, including technology companies, which have seen an investment boom over the last 2 years. Private equity and, to a certain extent, venture capital, investors and targets must now consider the impact of competition on their intended transactions” stated Abdulrahman Hammad, partner and head of the finance practice at Hammad & Al-Mehdar.

The Changing Future Of Saudi Arabia

The Saudi government’s Vision 2030 is a bold and ambitious plan that is sure to have a major impact on the Kingdom’s economy. While the full extent of these impacts is not yet known, it is clear that businesses will need to be prepared for a number of legal and regulatory changes. From new regulations on 5G and data protection to increased competition law enforcement, businesses will need to adapt in order to stay ahead of the curve.

Mergers & Acquisitions: Trends & Visions In Saudi Arabia

Posted on April 18, 2022 - 7:58 am by perpetual-admin

Mergers and Acquisitions (M&A) have been increasing in Saudi Arabia as the country undergoes economic diversification and privatisation initiatives. The nation is currently one of the most active markets for M&A in the region. For international companies seeking new opportunities, Saudi Arabia presents a unique opportunity to invest in a country with a young and growing population as well as a rapidly expanding economy.

However, the legal and regulatory environment for M&A in Saudi Arabia is still maturing and businesses should ensure they have a clear understanding of the relevant laws before proceeding with any transaction. Early and careful preparation is essential to ensure a successful merger or acquisition in Saudi Arabia.

Current M&A Trends In Saudi Arabia

2020 saw a 73.4% increase in deal value in comparison to 2019, representing a growing trend of high-value M&A activity across the region. In 2021, this pattern continued, with $44 billion worth of announced deals in 2021. Compared to the M&A activity of the entire Middle East and North Africa region in that same time period – $75 billion. Saudi Arabia stands out as being a key market for M&A.

This trend is set to continue in the coming years as the Saudi economy grows and the government continues to encourage privatisation and foreign investment. The highest value deals are being seen in the energy and materials sector, but when it comes to deal count, most mergers and acquisitions have been spread across the consumer, healthcare, education, and ICT sectors.

Legal Considerations During A Merger Or Acquisition

When conducting a merger or acquisition in Saudi Arabia, businesses must consider the relevant legal and regulatory framework. As the regulatory body for M&A activity in the Kingdom, all mergers and acquisitions must be carried out through the Ministry of Commerce, including the final issue of amended commercial registration.

In Saudi Arabia, most private M&A transactions are structured as share purchase deals in which the share capital of the target is acquired by the buyer from the seller. Break fees are customary in Saudi Arabia, but do not usually exceed 1% of the deal value.

Public M&As are regulated by the Capital Market Authority (CMA). Before a public transaction may proceed, the bidder and the target must appoint a CMA approved financial adviser and an independent legal adviser.

If a non-Saudi/non-GCC national is to be involved in any M&A activity, the person must first apply for the relevant foreign investment license. The Saudi Ministry of investment (MISA) – formerly known as SAGIA – is the main governmental body responsible for regulating foreign investments in the Kingdom. MISA provides licenses and approvals for foreign investors and oversees the implementation.

The Saudi Central Bank (SAMA) — previously referred to as the Saudi Arabian Monetary Authority — is responsible for regulating the banking and financial services sector in the Kingdom. SAMA must approve any merger or acquisition involving a Saudi bank or financial institution.

If a merger or acquisition may result in some form of “economic concentration”, then the General Authority for Competition (GAC) must be notified 90 days before the closing of the M&A transaction. The GAC interprets “economic concentration” widely, and we strong recommend transacting parties to thoroughly consider whether their transactions may be subject to competition notification prior to transacting.

Why Businesses Should Prepare Early On

Businesses should prepare early when considering a merger or acquisition in Saudi Arabia. The legal and regulatory framework is still maturing and there is a lack of precedent in many areas. This can make it difficult to predict the outcome of a particular transaction. Early preparation will allow businesses to identify any potential risks and take steps to mitigate them. It’s also important to seek professional advice from a qualified lawyer or advisor who is familiar with the Saudi M&A market. They’ll be able to guide you through the process and ensure that all the necessary legal and regulatory approvals are obtained.

Mergers and acquisitions can be a complex and time-consuming process. However, with the right preparation and guidance, they can be a valuable tool for businesses looking to grow in Saudi Arabia. M&A will play a key role in the development of the Kingdom’s economy as it continues to diversify, with increased private sector participation and foreign investment.

Legal Due Diligence: Why Is it Important in M&A Transactions?

Posted on May 29, 2022 - 7:41 am by perpetual-admin

A 2021 report by the Saudi Venture Capital, showed that the VC ecosystem had 88 deals, which were all valued at $152 million. Another report by the financial market data firm, Refinitiv, highlighted the growth of mergers and acquisitions (M&A) across the Middle East and North Africa. The report showed that Saudi Arabia dominates M&A, with deals reaching a record high compared to the previous years.

The increase in M&A activity is attributed to an influx of foreign investment, however such transactions are sensitive and require rigorous legal, due diligence. They also have the tendency to attract the scrutiny of the General Authority for Competition, trying to avoid monopolistic and oligopolistic practices.

What Is Legal Due Diligence?

Legal due diligence involves reviewing a company’s documentation to identify any potential legal exposure and non-compliance issues. Legal due diligence is conducted when a business is interested in acquiring or merging with a target company.

Legal due diligence has different subcategories, which include:

Business
Accounting
Intellectual property

The due diligence seeks to know more about the company:

Lawsuits (pending or potential)
Debts
Leases
Warranties
Compensation
Distribution agreements
Contracts

The company looking to get involved in a M&A will request the following documents from the target company:

Material contracts

The buyer must review all the seller’s material and commitments. The contracts that must be reviewed include:

Guarantees and credit agreements
Indemnification agreements
Employment agreements
Customer and supplier contracts
Partnership or joint venture agreements
Settlement agreements
agreements on past acquisition
Equipment leases
Government contracts
Any other relevant contracts the company is involved in

Employee & Management Issues

The buyer should also try to understand all the issues affecting the employee and the management. Such documentation includes:

Policies or allegations involving sexual harassment
Allegations of any sexual misconduct
Any labor disputes
Relevant information involving previous, pending, or threatened labor stoppage, slowdown, or other similar labor activity.
Any key employees and company officials involved in any criminal proceedings or civil litigation

Litigation

A review of any pending, threatened, or settled litigation or arbitration the seller is involved in. Some documentation to be reviewed include:

Attorneys’ letters directed to the auditors
lawsuits brought against the company

Governmental Regulations, Filings, and Compliance with Laws

The buyer would want to know whether the seller was involved in any regulatory requirements by reviewing the following documents and citations.

Any current or pending governmental proceedings
Government agencies’ citations or notices issued to the seller
Certification of compliance with respect to the company’s regulatory standard
Any cancelled or terminated company permits or licenses.

Once all the information is reviewed and relevant data collected, a business can make informed decisions.

Why is Legal Due Diligence Needed?

Due diligence offers the following advantages, which are all crucial in an M&A deal:

1. An opportunity to understand the target company.

When conducting legal due diligence, all the relevant documents touching on any current or potential legal exposure are collected. All these documents help the buyers understand more about the target.

2. Understand the Target’s Fair Price

Having financial information about the company, including lawsuits, can help come to a conclusion on how much the company is worth. The information gives each party room for negotiation, especially in an M&A transaction.

3. Identify Possible Future Risks

Certain risks a company is facing can become a big problem after an M&A transaction. Identifying all the risks early on can help a company better prepare on how to handle them. Identifying the risks early on can also help a buyer decide whether to proceed with the M&A transaction.

4. Helps Prepare an M&A Contract

Legal due diligence helps identify existing problems that can prevent the deal from going through. When all the parties are aware of these problems, they can discuss solutions that will ensure a smooth transaction.

Significant M&A Transactions in Saudi Arabia

Saudi Aramco closed a US$12.4 billion deal that involved selling a 49% stake in Aramco Gas Pipeline to a consortium of international investors. The investors included Keppel Infrastructure Trust, Silk Road Fund, China Merchants Capital, and Hassana Investment. The deal is part of ongoing Saudi Arabia’s efforts to sell assets and use the proceeds to find other industries and increase oil and gas output.

The private equity sector has also witnessed an increase in M&A activity over the past few years. In the first half of 2020, the venture capital got 45 deals valued at US$95 million. During the same year, the Public Investment Fund allocated US$1 billion to develop the private equity and venture capital ecosystem.

When it comes to prominent industries in Saudi Arabia, the e-commerce industry is still the most targeted industry for the second consecutive year. Along with the fintech industry, the e-commerce industry represents 30% of all the total M&A transactions.

Choosing Who To Manage the Due Diligence Process

Choosing who to conduct and manage the due diligence process is critical. They should be able to communicate the due diligence process, what is covered in the review and what is commercially material to the buyer.

Conducting due diligence on the petroleum and gas business is different from the construction industry. A buyer should choose a legal counsel that is experienced and knowledgeable in matters related to M&A.

Additionally, reviewing all documents in the legal due diligence process is challenging for one person, which is why a buyer should choose a legal firm for the job.

For a smooth M&A transaction, relevant people must be involved to undertake all the work involved in legal and due diligence. Having an experienced legal firm overseeing the whole process will ensure that potential risks are pointed out and worked on early on.

At Hammad & Al-Mehdar Law Firm, we will represent your interests and help conduct the legal due diligence for M&A transactions. As one of the leading private legal practices across Saudi Arabia and the wider Gulf Cooperation Council (GCC) we have decades of experience in M&A transactions. Contact us today to learn more on how we can help you conduct legal due diligence.