The Middle East and Asia are attractive destinations for issuers. But the requirements differ dramatically.

We analyzed the listing rules in Oman, Bahrain, the UAE, Hong Kong and Vietnam and identified interesting features of the regulation of bond and sukuk issuances.

1. Types of debt securities of foreign issuers eligible for trading

Oman and the UAE

Oman and the UAE offer symmetrical regulation: both classic bonds and the Islamic equivalent of bonds — sukuk — fall under the regulation of these jurisdictions.

2. Methods of admitting bonds / sukuk to the public market

Oman

It is possible to issue bonds / sukuk with the involvement of local intermediaries directly, without establishing an SPV, as well as with the establishment of an SPV.

The placement of sukuk by a foreign company directly, rather than through an SPV, entails a greater tax burden; for this reason, most sukuk are issued through SPVs.

Bahrain

It is possible to place bonds through an SPV, as well as to conduct a secondary listing of bonds issued by a foreign issuer.

The UAE

A foreign company may establish an SPV that will place bonds, or it may issue sukuk or conduct a secondary listing of bonds if they are already traded on a recognized exchange. A recognized exchange is one that is subject to the supervision of a member of the International Organization of Securities Commissions (IOSCO). The Bank of Russia is a member of IOSCO, and therefore exchanges operating in the Russian Federation should be recognized, but due to the difficult political situation such recognition may present difficulties.

3. Requirements for bond / sukuk issuers

Oman

To issue bonds, unlisted companies, as well as to issue bonds with a maturity of more than 2 years, a credit rating is required.

In Oman, the rules for sukuk issuance are formalized at the regulatory level. To issue sukuk, the issuer company must, pursuant to the Regulation on Bonds and Sukuk, establish a Sharia Committee and comply with Sharia principles.

Compliance with Sharia principles is verified by the beneficial owner of the issuer company. Accordingly, starting from the date of sukuk issuance, the latter is obliged annually to submit a report confirming compliance of the sukuk with Sharia principles through the electronic publication system and on its website.

Bahrain

To issue bonds, the foreign issuer company must, in particular, have been carrying on business for at least 2 years and have paid-up capital of at least $10 million.

The relevant requirements do not apply to an SPV acting as the issuer. The requirements for an SPV registered in Bahrain are minimal.

Hong Kong

The foreign issuer company must comply with a high level of corporate governance, obtain a local credit rating, and parallel the disclosure of financial statements, internal company documents and other material information about the company in Russia and Hong Kong.

Vietnam

To issue bonds, the issuer company must not have any overdue obligations under previously issued bonds during the last 3 years, and the obligations of the issuer company (including the value of the new issuance) must not exceed five times the company’s equity under the latest audited financial statements.

4. Eligibility for acquisition of the securities by different categories of investors

Hong Kong

For a public offering of bonds, the foreign issuer company must ensure compliance with the requirements of its country of incorporation and with the investor protection requirements standard for Hong Kong.

The exchange may refuse to admit the bonds to the public market if it is not satisfied that the jurisdiction of incorporation of the foreign issuer company provides shareholder protection standards that are not equivalent to those in Hong Kong. If the constitutional documents of such foreign issuer company are amended so as to enhance the protection of minority shareholders, or if the exchange imposes additional obligations on the issuer to protect shareholder rights, the listing may be approved.

For a placement of bonds exclusively for professional (qualified) investors, the company must generally have net assets of at least HKD 1 billion.

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Thus, the choice of jurisdiction for issuing bonds and/or sukuk today is determined by the following factors:

• tax consequences;

• the compatibility of corporate governance arranged in Russian companies with the requirements of the foreign exchange;

• the possibility and cost-effectiveness of placing bonds / sukuk directly by the company, without establishing an SPV; and

• the requirements for access to financial products by a specific pool of investors (retail / institutional investors).