Any sale of shares of a company listed on the Kuwait Stock Exchange ("KSE") amounting to 5% or more of the company's share capital must follow Kuwait's procedures for block trading as well as disclose such a transfer to the KSE.

Block Trading Decision

KSE Committee Decision No. 2 of 2006 (the "Block Trading Decision") states that any sale of shares amounting to 5% or more of a company listed on the KSE must be traded in accordance with the procedures listed in the Block Trading Decision as described below:

  • The seller submits to its broker share certificate(s) in cases where the Kuwait Clearing Company ("KCC") balance record does not indicate ownership of the relevant shares.
  • The broker delivers the relevant share certificate(s) to the KCC upon its receipt from the seller and issues the same a statement of account from the KCC.
  • Upon receipt of order to sell, the broker notifies the Trading Department of the KSE of all pertinent details.
  • The Trading Department announces the upcoming deal along with all information relevant to the trade such as the share quantity and initial bid within five days prior to the suggested date of execution. The Trading Department reserves the right to determine the date and time which it considers suitable for the transaction.
  • The purchaser presents a certified check constituting 10% of the trade value in the case where the purchaser's KCC account balance is insufficient to cover that amount. The percentage of calculation is based either on the closing price of the stock to be traded or its most recent ask price, if available, the greater of which will be used.
  • The shares of the company are put up for auction and the transaction is executed by the end of the trading period to the highest bidder.
  • The relevant broker issues a trade contract upon execution of the transaction and forwards copies of the same to the bidding broker, the KCC, and the Trading Department.
  • The KCC deals with any settlement related obligations arising from the transaction and collects any payable commissions based on the price at which the trade was executed or the closing price of the relevant shares as of the contract date, the greater of which will be used.

Sellers trading shares to an intended purchaser directly in accordance with the Block Trading Decision face the risk that the purchaser will not want to bid for the shares at auction. In this event, a seller may transfer the shares to the purchaser indirectly using a three-step process:

  • Establishing a SPV as its wholly-owned subsidiary;
  • Transferring the shares to the SPV; and
  • Transferring ownership of the SPV to the purchaser.

We have been informed by the relevant authorities in the KSE that the transfer of shares from a company to its wholly-owned subsidiary will not fall under the Block Trading Decision's provisions.

Disclosure Requirements

Law No. 2 of 1999 Regarding the Disclosure of Interests in the Shares of the Joint Stock Companies (the "Disclosure Law") provides that every shareholder in a listed joint stock company ("KSC") must notify the KSE of any direct or indirect transfer of shares representing 5% or more of the KSC's share capital. The Disclosure Law, along with Decision 5 of 1999 Concerning Declarations of Interest in Shareholding Companies ("Decision 5"), also requires that KSCs must reveal to the KSE the names of all shareholders who own 5% or more of the company's share capital as well as any changes to that percentage.

Particularly, the KSE requires disclosure of the following types of interest that arising from activities pursuant to Article 2 of the Disclosure Law and Article 4 of Decision 5:

  • Joint ownership in a KSC's shares;
  • An agreement with another party that restricts their ownership of the shares or their rights that arise from ownership of the shares;
  • A commitment to purchase shares through forward sale or option transactions;
  • Ownership (direct or indirect) of 20% of an entity holding 5% or more of the KSC's share capital.
  • A decrease in the proportion of interest in the KSC, mortgaging or agreeing to mortgage such ownership interest or agreeing as well as terminating such a mortgage, and pledging ownership interest in the KSC as security for a loan;
  • An offer of the ownership interest as a share in another company;
  • Legal ownership of the 5% or more interest in the KSC on behalf of another party; and
  • Any increase in ownership of shares of a KSC that will reach 5% or more and any increase or decrease in the amount of such ownership.

Violation of the Disclosure Law results in the violating shares' exclusion from the quorum needed to convene the company's general assembly as well as the violator's exclusion from the voting on any resolutions for two election periods. Furthermore, the manager of the KSE must refer the violator to the KSE's arbitration committee which will decide if it will deprive the violator or his nominee of their membership of the board of directors of the company for two election periods.

Conclusion

In sum, a seller may directly transfer shares of a listed company valuing 5% or more of the company's share capital in accordance with the Block Trading decision or indirectly by transferring the shares to its wholly-owned SPV. The seller must report such a transfer, whether direct or indirect, to the KSE.

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