Bahrain client updater

February 2012

Contacts

Introduction

Welcome to the February 2012 edition of the ‘Bahrain Client Updater’. As always, our aim is to provide a brief and regular update on a variety of subjects and legal issues of interest to our Bahrain based clients. Please let us know if you have any feedback or requests for future topics.

This edition examines the extra-territorial implications of the UK Bribery Act, the health of the PPP sector in the region, a new Regulation for the pledging of securities and the competitive disadvantage of a Category 2 Investment Firm Licence.

Litigation and dispute resolution

BBBF Presentation - the implications of the UK Bribery Act

On 18 January 2012 Adam Vause delivered a presentation to the Bahrain British Business Forum on the implications for business in the region as a result of the UK Bribery Act (the Act). The presentation focused on the extra-territorial application of the Act and the risks for corporates and individuals if its provisions are ignored.

For more information, please contact:

Adam Vause

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Construction

The health of PPP in the region

A year ago, confidence in the region’s PPP story had taken a turn for the worse. Schemes were abandoned or put on hold due to varying factors from political crisis in Egypt to struggles with risk allocation in Abu Dhabi (a car park PPP). Power projects were proving the most successful, and attracting the most competitive appetite internationally, with Shuweihat 3 IWPP achieving financial close by mid-May. However the market was desperate for success in other sectors to provide some benchmarks and build momentum. The accomplishment of Bahrain’s Muharraq wastewater plant PPP achieving financial close at the end of the summer may perhaps have contributed to greater hope. Closing such a pathfinder project in the most difficult of circumstances, both politically and economically, provided a robust statement to the market and activity in the region has picked up. Kuwait is pushing ahead with its wastewater plant in Umm Al Hayman and Saudi Arabia with the Madinah Airport expansion. Joanne Emerson Taqi acted for the government advisory team on the Muharraq project and is currently advising the Kuwaiti government on the Umm Al Hayman project. Martin Preston is acting for the preferred bidders on the Madinah Airport expansion.

For more information, please contact:

Joanne Emerson Taqi or Martin Preston.

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Banking

New Regulation for the pledging of securities

On 29th December 2011, Regulation No 59 of 2011 “Specifying the Procedures to be followed for the Registration of Pledges and Liens on Securities and the Discharge and Lifting of such Pledges and Lien”, came into force.

The Regulation is aimed at addressing the current issues and difficulties faced by all related parties involved in the pledging of securities, in order to provide the market with a clear template to protect the rights and interests of mortgagees, maintaining an efficient mechanism for the performance of the obligations of mortgagors and to avoid potential unlawful transactions on the pledged securities.

The Regulation does not replace current laws relating to the establishment or imposition of securities mortgage agreements, and regulated parties should continue to comply with existing laws.

All capital market service providers, including financial institutions maintaining the securities of listed companies as collateral or any other party who has entered into a securities mortgage agreement or contract, is required to ensure that their shareholders, partners and clients comply with the requirements of this Regulation in general, and in particular with the requirements in Article 30 of the Regulation.

For more information on the new Regulations or any other issues relating to the banking sector please contact:

Mark Adams or Melanie Henry.

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Corporate finance

The competitive disadvantage of a Category 2 Investment Firm Licence

There are three categories of investment firm licence. The investment services provided by the institution will determine the category of license issued by the Central Bank of Bahrain. At the top of the list is a Category 1 investment firm licence. This category licence permits an investment firm to undertake all regulated investment services including dealing in financial instruments as principal, arranging deals in financial instruments, acting as a custodian, being an operator for a collective investment undertaking and even underwriting the issuance of financial instruments. The second category is the Category 2 investment firm licence. This category permits an investment firm to undertake all regulated investment services described above, but prohibits it from dealing in financial instruments as principal. The third category is the Category 3 licence. Of the three categories of licence, this category is the most limited in terms of the services it permits. A category 3 licensed investment firm needs to be independent of its parent and is only permitted to objectively arrange deals in, or advise on, financial instruments.

Therefore, whilst a category 2 licensee may set up and operate a collective investment undertaking, it cannot, itself, be an investor in that fund (although the shareholders of the category 2 licensee may invest in the fund). A commitment by an institution to its own fund can be of significant value to institutions in marketing the relevant fund - only a category 1 licensee (or full banking licensee) may do this.

A summary of the key elements of the requirements of each category of investment firm and additional requirements to apply to those investment firms which operate purely on a Shari'ah compliant basis are to be released soon by the Central Bank of Bahrain.

For more information, please contact:

Adrian Woodcock or Rayhana Sheikh Kapadia.

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