Provisions of Bonds Convertible to Shares

What are Bonds Convertible to Shares?

Firstly, bonds are considered equal value documents acts as common shares of possession of certain persons, benefits, services or existed in certain project or investment activity. Bonds convertible to shares are types of bonds that enable its holders to convert it latterly to shares. Whereas shares are equal value security subject to trading by a permission of Money markets authority to prove a share in a corporate capital.

In the group of RHR for advocacy and legal advices we shall declare provisions of bonds convertible to shares along with what is stipulated in the eleventh book of the executive regulation of law No.7 for the year 2010 about Money markets authority establishment and security activity regulation.

Provisions of Bonds Convertible to Shares

Issuance of Bonds Convertible to Shares Should Be according to a Decision of Extraordinary General assembly

The Money markets authority establishment law regulation granted the right for the obligor, issuer legal person, to issue bonds convertible to shares by a decision issued from the extraordinary general assembly for the obligor, according to a reasonable decision of the board of directors, according to the following restrictions and regulation:

• The defining of rules on which the transfer is made from bonds into shares, especially a share value on which the transfer is made.
• The issue price of the bond shall not be less than the nominal value of the share.
• The total nominal value of the shares which bonds are suggested to be transferred within it, adding to the nominal value of the issuer shares at the time of issuing this type of bonds, should not exceed the authorized capital.
• The time period which within allowed to covert bonds to shares.
• The eligibility of the holder of the bond to recover its value if he doesn’t want to convert it to shares.

Also, it is permitted to the obligor to issue bonds wherein its holders have the priority right to subscription at any increase in his capital, considering to who wants to do this – through a time limit by no more than fifteen working days from the date of announcing bond holders by this – and the right of priority is limited to subscription to shares which its nominal value are no more than bonds value owned by who make use of this right, unless the prospectus of the capital share increasing stipulates another.

The Priority Right of the Obligors’ Shareholders to Subscribe to the Bonds Convertible to Shares

The obligors’ shareholders has the priority right to subscribe to bonds convertible to shares if they mentioned this through time period by no more than ten working days from the date of their invitation to use this right, and it is allowed to the shareholder to make use of his right in subscription priority to these bonds on condition that it would be not exceed his percentage in the obligor’s capital, if the subscription provisions allows him to do it, regarding that all of this unless if a decision was issued from the obligor’s general assembly for shareholders to waive their right in priority to subscribe to those bonds.

Mentioning the Desire of Bonds holders to Convert it into Shares

The regulation stipulated that bond holders who want to convert it into shares should mention their desire during the stated period in the prospectus, while bonds are converted to shares according to rules and provisions stipulated in the prospectus, and the corporate should fulfill the value of bonds which their holders doesn’t want to convert it to shares at the due date, unless the prospectus didn’t include a condition other than that.

The Approval of the Bond Holders Authority to the Obligor’ Issuance of Security Convertible into Shares

The regulation prohibited the obligor – after his issuance of bonds convertible to shares and until its convert date or its consumption – to distribute bonus or profits from reserve, or any other security convertible to shares, unless after granting an approval of the bond holders’ authority, unless the prospectus included a condition other than that.

Also, the obligor is not allowed – after his issuance of bonds convertible to shares and until its convert date or its consumption – to decrease his capital, or reduce the percentage decided to be distributed as a minimum profit on shareholders. Excluded from this reduce the obligor’s capital by the reason of loses, unless the prospectus stipulated a condition other than that.

Besides, the shares granted by bond holders – because of their bonds transfer – have a share in profits decided to be distributed along the fiscal year in which the transfer was made.

The Approval of Bond Holders’ Authority While Amending the Provisions of Converting Bonds to Shares

It should be granted an approval of the bonds holders’ authority to any amendment of the provisions of converting bonds to shares occurs after bonds issuance, unless the prospectus didn’t regulate this amendment, on condition that this amendment takes place according to what is stipulated in the prospectus.

The Emission of a Decision of Capital Expansion of the Issuer

The obligor’s board of directors should issue a decision of capital expansion of the issuer by the necessary extent to convert bonds to shares, according to provisions and restrictions stipulated on the prospectus, and the decision is suspended to a condition on implementing the provisions of converting bonds to shares, according to what is stipulated on the prospectus, also, this decision should be attached to documents submitted to the Money markets authority to grant the approval on bonds issuance.

Notify the Obligor of the Names of the Bonds Holders Whose Their Bonds are Required to be Converted into Shares

Immediately after implementing the provisions of converting bonds to shares, the representative of the bonds holders should notify the obligor by the names of bonds holders whose their bonds are required to be converted to shares, and the count of the deserved shares to everyone.

And the obligor should – during fifteen working days of receiving the announcement – take necessary procedures to notate by the decision of the obligors’ board of directors in the commercial record, and instruct the clearing agency that keeps its shareholders’ record to issue shares and delivering it to the deserving.

In case of refraining of the obligor from making these procedures, the bonds holders’ authority – according to the representative inquiry, and after make sure that the obligor doesn’t have the right to issue shares – shall address the ministry of commerce and industry, and clearing agency, to take necessary procedures to notate by the decision of the obligors’ board of directors.

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