United Arab Emirates: The UAE's ADGM SPVs: An Option For Securitisation

Last Updated: 1 March 2018
Article by Ashish Banga

There has been an increasing interest of foreign investors in the use of special purpose vehicles ('SPV') in the structuring of securitisation transactions in the UAE. The financial free zones in the UAE i.e. the Abu Dhabi Global Market ('ADGM') and Dubai International Financial Centre (DIFC) have played a pivotal role in attracting this interest by providing an option of a flexible, robust, simple and efficient SPV regime that is well suited as a legal entity for securitising a portfolio of assets.

Businesses that wish to transform their illiquid assets to cashflow usually opt for either a factoring or securitisation structure, both of which enable a business to sell its assets (usually account receivables, i.e. outstanding monies owed to that business) to third parties at a discounted price. While under a factoring transaction, third parties are typically banks and financial institutions, under a securitisation structure, the idea is to procure funding from not just the banking sector but from the wider investment and capital markets.

Under a securitisation structure, the twin objectives of transferring assets for the benefit of investors and, at the same time creating a capital market instrument can be achieved by using a SPV. SPVs are specifically and solely created for the purpose of: (i) holding assets sought to be transferred by the originator, the assets, once transferred, are ring fenced for the benefit of the beneficiaries of the SPV; and (ii) the issuance of financial instruments by the SPV, providing exposure to the underlying assets transferred to the SPV. Investors do not have to acquire or purchase all of the assets of the originator directly, but they do so indirectly through the securities issued by the SPV with their investment decision depending on their risk and investment appetite. In practice, while the assets of the originator are transferred to the SPV, making the SPV the legal owner of the underlying assets, the SPV is a conduit between the assets and the ultimate investors, making the holders of the securities the ultimate beneficiaries of the underlying assets.

Under the laws of UAE, the restrictions on foreign shareholding and filing requirements often make it difficult for foreign investors to set up an onshore SPV and implement a securitisation transaction. Also, UAE law does not recognise the notion of a trust removing the availability of a critical structuring tool employed in securitisation. However, the basis of the ADGM and DIFC legal framework is English and common law meaning trust structures can be used in connection with its SPV regime. For purposes of this Article we will limit ourselves to benefits of securitisation structure under ADGM.

A typical securitisation structure under ADGM's ambit can be explained as below.

By virtue of being incorporated in the ADGM, the SPV regime offers a number of benefits including:

  • No foreign ownership restrictions. ADGM entities are not subject to any requirement of minimum shareholding by UAE nationals. Therefore, 100 per cent of the SPV may be owned by a foreign national or group of foreign nationals.
  • Tax Residency. All ADGM registered companies are eligible to apply a Tax Residency Certificate from the UAE Ministry of Finance to benefit from the UAE's Double Tax Treaty network. This is subject to meeting the criteria of Ministry of Finance. In addition to this, there are no (a) withholding taxes, or (b) restrictions on repatriation of profits.
  • No Office Space Required. Unlike an ordinary ADGM company limited by shares, an ADGM SPV is not required to take office space, however, they must provide a registered address on Al Maryah Island. This will ordinarily be the address of its appointed service provider and is similar to the registered office requirement in other jurisdictions. This exemption of office space removes a significant cost of setting up of an SPV.
  • Migration or continuance of existing corporate entities. ADGM permits the relocation and redomicile of companies to ADGM from other jurisdiction. A company that is incorporated outside ADGM may apply for the issuance of a certificate confirming that it continues as a company registered under the ADGM Companies Regulations. The company must be authorised to make such an application by the laws of the jurisdiction under which it is currently incorporated.
  • Legal and Regulatory. In terms of legal and regulatory aspects governing the SPV, the direct applicability of common law ensures a high level of legal certainty and provides comfort to foreign investors coming from a common law background. In particular, SPVs have access to ADGM's sophisticated regime for registration and enforcement of security interests, which is often a critical factor in selecting a jurisdiction in which to incorporate SPVs for a securitisation transaction.
  • Holding Company. While the DIFC and the ADGM options allow for securitisation transactions, the 'holding' company concept is radically different in both centres. It must be noted though that the name 'special purpose vehicle' inherently means an entity created for a special purpose, and implies a temporary nature. However, the ADGM does allow these SPVs to function as ultimate holding companies, which, in theory, can continue in perpetuity.

In addition to these benefits, there are certain other benefits that may incentivise foreign entities to set up SPVs under the ADGM regime for a securitisation structure, such as: independent ADGM Courts; an efficient timing for set-up; no restriction on the number of shareholders; a quick and easy fully digital registration process; no attestation requirement for corporate documents; which may incentivize foreign entities to set up SPVs under the ADGM regime for a securitisation structure.

However, an SPV set up for a securitisation structure cannot conduct 'financial services' in or from the ADGM, unless it is appropriately authorised and regulated by the Financial Services Regulatory Authority. This would depend upon the business plan discussed and submitted with the Financial Services Regulatory Authority. Subject to the review of this plan and objectives of the structure, an SPV is advised by the Financial Services Regulatory Authority on the kind of licensing they are required to adhere to under the financial regulations of the ADGM.

The financial participants interested in setting up a securitisation structure within the UAE may consider ADGM as a potential option in addition to already existing options under the DIFC, given the benefits these financial free zones offer and provide set-up and regulatory mechanism similar to a lot of common law jurisdictions. We will be happy to discuss this and assist with potential set-ups in either of these financial freezones.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions