The following are some of the rules and regulation that applies to Kuwait application of debentures to the investors; the first requirement is that it must be licensed by the Kuwait Ministry of Commerce and Industry. The Ministries has a responsibility to supervise the issuing of the debenture by the Central bank of Kuwait. The Commercials Companies Law requires that company capital subscribed be paid in full and does not allow issuing of debentures that more than the capital paid up. The holder must pass the resolution authorized by the Kuwait issuers. Once the debenture holders are issued with the joint stock the holders form a group so that they can represent their payment as a group. The issuer has to call for a meeting of the association to approve the bylaws, since the group form are many it may be a problem in the approving of the by law and hence the managers of the group are called to approve the bylaws and then pass them to the holders in their groups.
Another requirement is that before than issuance invitation the subscribers must be published in an Al Kuwait Al youm that contain the resolution approval, the number and the value of the nominee, capital of debenture ,it maturity ,the recent balance sheet and the purpose for issuing the loan. Failure to satisfy the above requirement means that the subscription was to be terminated and the amount of investment would be reclaimed by the investor.
The Central bank of Kuwait was to purchase the customer debts. All this debts were to be transferred in the central bank of Kuwait with their personal requirement. The purchased debt was to be scheduled with the clients, their guarantor, their financial abilities and the cash they get. Based on the above position the schedule terms were to be set, that depended on the time, interest and the yearly installments. The Kuwait banks were to be purchase the debt including all the procedure in the recovery and collection of debts. The local banks were too held in trading of the mortgages provided by the debtor and the guarantors this was to the accordance made by the central bank of Kuwait (Feiler 88). The cost incurred in the buying of the debt was to be shared by the banking and the financial sectors. This was to help in incurring the cost of debts that were not purchased.
Underwriting refers to the orderly procedure of registering security regarding the financial sourcing of a given public offering through the purchase of various securities (Weirtheimer 9). The purpose of this is mainly reselling to the public. The process of underwriting may involve a commitment to purchase the whole amount of the respective company’s securities (Feiler 67). This is so regardless of the ability of reselling the acquired entities. The process of underwriting of a given low-priced initial public offering and other less well known stocks may actually be done on the basis of a best effort chosen. In this case, the underwriter acts only as an agent for the whole process and therefore accepts no financial liabilities.
The Kuwaiti shareholding companies whose scope of aims includes the factor of investment of funds for third party’s accounts can establish joint real estate and financial investment funds. In this case, Kuwaitis as well as non Kuwaitis are entitled to subscribe to them. Further, the funds can be established after the process of obtaining a valid license from the Ministry of Commerce and Industry in Kuwait is successfully done. The Central Bank of Kuwait is also responsible for giving validity to such venture and is therefore the last say when it comes to approvals.
The process of purchasing certain securities for the purpose of reselling them to the public in the future is either done directly or through the use of lawful dealers. Underwriting of a new offering of securities is mainly done by a chosen investment banker (Weirtheimer 23). In this case, the investment banker assumes the entire risk in bringing the given issue to the respective market. Further, the investment bank must guarantee the given issue that they will receive a certain agreed price when the offering is sold to available and willing investors. This is how underwriters make their income arising from the price difference. This process is also referred to as the spread for underwriting and it involves considering the price difference between the amount paid to the issuer and the one that the underwriters will be paid by the investors and brokers after the IPO (Plum 89).
When a chosen bank dealer purchases the Treasury securities in a quarterly Treasury bond auction, it often acts as a lawful underwriter and even distributor. The securities bought by the dealer are in most cases kept in an assets’ portfolio for trading account. In most instances these securities are then sold to other banks chosen to underwrite and also private investors (Plum 90).
The process of issuing debentures by local stock companies in Kuwait became active again the early 1990’s. This was after Kuwait’s struggle in the Iraq invasion and economic reconstruction. Part of the existing attraction regarding the process is the rate of interest of debentures currently set. In this case, they are actually higher than the rate of interest on deposits. Therefore, it is evident and obvious that they are the more appealing entities to various investors. Further, the cost of debentures is also to issuers as well.
In Kuwait, just until recently the process of underwriting was the only primary function performed by a given number of specialty houses. However, this case scenario and culture has recently changed to accommodate other banks and situations. The respective underwriters merged their talents and education with institutional and retail sales in order to boost and bolster their respective sagging bottom lines. Currently there is very little distinctive line between the wholesale underwriting processes. This process in Kuwait serves the institution clients including the broker dealers. The retail underwriting often sells directly to respective individual investors.
The process of underwriting is not in force without the procedure of signing of the agreement between the banks. Basically, the underwriting agreement contract often finalizes the terms and conditions of the underwriting contract. However, this does not include the final price of the expected security to be issued and the total amount of the security to be offered to the public. The concerned parties usually sign this agreement just a day or two before the actual process of offering the actual public offering. For a firm undertaking, the underwriting process may often include the green shoe provision (Weirtheimer 66). This refers to the process of allotment which often involves fifteen percent of additional stock for the account of the respective underwriter. It is vital to note that when a given public offering goes particularly well, the given underwriter may end up executing the green shoe provision in order to increase the amount of securities legally available for sale to the public. In Kuwait, the process of underwriting on a the basis of best efforts provision often uses a number of variable but available options in order to properly and efficiently conclude the given offering process. Further, an all or none offering process will often be canceled if the given securities are actually not sold in the long run. With these aspects in mind, a given mini-max offering often efficiently establishes an acceptable lower or upper range acceptable and available.
Are there costs involved in the process of underwriting? The answer to this question would be a definite yes. There are various costs which are inevitable in their making if the given process is to be efficiently implemented. The respective concerned institutions therefore have to adopt the best modes of practice available and legal as provided by not only their personal internal constitution, but also in line with the procedures allowed by the constitution of Kuwait.
The concerned individuals in this process are obviously overly educated and therefore experts in this field. Further, it should be noted that banks want to deal with the best available individuals in terms of qualifications, practice, and past experience. As such, there are costs obviously involved for the implantation of the process.
Underwriters taking part in the process are often paid commissions and securities, or through a combination of both the entities. In a corporate commitment, the price the underwriters pay the company for the given securities is often expected to be less than the price offered to the public. The underwriter spread often compensates the underwriter for ensuring an efficient and effective conduction of the offering process. The spread involved often averages and ranges up to ten percent of less. Further, the spread involved is dependent on the anticipated intricacy and size of the offering in question. The given spread is however controlled by the mechanisms present in Kuwait and other impacting institutions in the world (Dicks 35). For instance, the maximum spread allowed by the National Association of Security Dealers is only 10 percent.
It should be noted that there are no given expenses which cannot be accounted for. All expenses can be linked and construed as a vital part of the offering by the involved institutions. They are often necessitated by the preliminary steps of ensuring that the company is brought successfully till the end of the registration process.
What is the process involved in the distribution of shares? It is vital to note that for a given corporation to distribute their respective shares, it is obligatory that they go public first. This is the provision of the lay in not only Kuwait, but also in other numerous countries in the world (Dicks 65). Also the company needs to give the option for stock to its staff and suppliers as a way of improving performance. Other offerings in most cases give a company the opportunity and legal basis to distribute its shares to investors that are interested in purchasing the stock. The procedure to follow in distributing these shares will be discussed in the sections below.
A privately owned company or organization will need to get the approval of its board of directors before it starts selling its shares publicly. It is only after this approval that the shares distribution to the public can commence according to law. After this approval the enterprise is required to contract the services of a professional underwriter to purchase shares that are not bought by the public during the Initial Public Offer (IPO) (Iannotta 51). As such, the shares to be sold must be real and available for the chosen underwriter. The given company then has to wisely select a given investment bank that can efficiently and effectively handle their wants and transactions regarding the process. After this the enterprise will then be required to formulate an intent letter that will be used to ensure that both parties perform their responsibilities as per the contract. Also this action will involve the charges of the investment bank. These charges are for the services the bank remits to the company. It is important that before any signing is done to confirm and accept the contracts, that the enterprise’s lawyer ascertains that there are no loopholes in the contract and that all the requirements of the law as per such a contract have been fulfilled.
It is very important in such a process that the company works hand in hand with its lawyers and legal consultants especially when it comes to formulation of a legal prospectus. Also, the organization should contract the services of a lawyer specially trained in securities. The given prospectus will be effective in summarizing the corporation’s main functions, financial status, management, and how many of its shares are available for sale to the public. The prospectus is then presented in order to validate the entire process. The Kuwait procedures and bureaucracies regarding this undertaking are not any form of bottleneck for the concerned institutions (Feiler 77). As such, the process is often very smooth, efficient, and most importantly fast. The security lawyers for the given corporate are the ones who file the necessary paperwork.
The organization and the bank in-charge of the investment should deliberate on the issue regarding any other banks or financial institutions in Kuwait that will be allowed to sell the shares after the IPO (Iannotta 90). After this the two organizations can then open an escrow account for the enterprise. All the money from the sale of the shares shall then be deposited here instead of the usual bank account for the firm. Then the enterprise will the formulate stock certificates to be filled with information about the investor once the latter makes the purchase. At this stage, the process is almost done. The company should then announce publicly their stock offering in the mass media plus any other media which is popular in the country. The television advertisement in Kuwait serves as a proper and efficient avenue for this process. The last step involves the process of completing the sale and issuance of the certificates to all the buyers available. The money paid by the investors is then deposited into the account opened specifically for this.
Notwithstanding the regulations governing the debenture market in Kuwait can at given times pose various challenges to the process of orderly issuance of debentures. Although the underlying programs behind this restrictions and laws are to protect the participating persons, it often results in slow process and delays that may actually threaten the planning and presentation processes that accompany issuances. As a result, some companies have opted to avoid such delays and the consequences that follow by proceeding through other forms of propulsion, such as offshore means.
Another complicating entity in the issuance of debentures in Kuwait is the relationship between the MOCI and the Central Bank of Kuwait. The MOCI here acts as the body that bears all the responsibility of overseeing and effectively issuing the ministerial resolutions that authorize the issuance of debentures.
A further problem arising from this process directly concerns the notice requirement that was imposed by Section 119 of the CCL. These provisions necessitates that before the issuance of an invitation to subscribe for given securities, a prospectus must be properly published. This prospectus must also contain the stated resolution of the general meeting which actually served as the avenue for the approval of the issue, the nominal value, the current predominant rate of interest, among other things.
WORKS CITED
Iannotta, Guliano. Investment Banking: A Guide to Underwriting and Advisory Services. New
York: Springer, 2010. Print.
Weirtheimer, Eric.Underwriting: The Poetics of Insurance in America, 1722-1872. New York:
Stanford University Press, 2006. Print.
Dicks, R. Underwriting one hundred one. London: Gower, 1981. Print.
Feiler, Gil. The Middle East in the new millennium. Tokyo: Brill, 2000. Print.
Plum, Shyrl. Underwriting one hundred one. London: Routledge, 2000. Print.
