A Special Purpose Vehicle (“SPV”) is separate legal entity or a subsidiary created by a company for strategic reasons which include joint ventures, asset securitization, tax optimisation or to isolate financial and operational risks – where in the case the parent company goes bust, the SPV can keep operating. When companies form an SPV they can structure them as(depending on the jurisdiction):
· A limited partnership;
· A trust;
· A corporation; or
· A limited liability corporation
One of the many qualities of a SPV is that their financials are separate to the parent company’s balance sheet. This means that an SPV has its own obligations and its own balance sheet and can benefit the parent company by “achieving off-balance sheet treatment for tax and financial reporting purpose”. However this quality is misused at times. For investors it poses a risk as it masks crucial information of the parent company’s financial situation. It is recommended that investors of a SPV do their due diligence on the parent company before making an investment decision.
Setting up a Special Purpose Vehicle in the Middle East
We will compare five jurisdictions based in the Middle East.
The Securities and Commodities Authority (“SCA”) regulates Mainland UAE and SPVs incorporated in this economic area will need to go through an entity that is registered with the SCA. Characteristics of a SPVs in Mainland UAE is that it is regulated in its home jurisdiction. With respect to targeted investors and subscription requirements, there are no particular requirements. Exceptions to the requirement of the SPV going through a locally regulated or registered entity is either by reverse solicitation or for Certain Qualified Investors.
Dubai International Financial Center (DIFC)
The Dubai Financial Services Authority (“DFSA”) regulates this financial free zone in Dubai. SPVs will need to be incorporated through an entity registered with the DFSA. There are no particular requirements for the characteristics of the SPV, targeted investors and subscription requirements.
Abu Dhabi Global Market (ADGM)
The Abu Dhabi Global Market is a financial free zone located in Abu Dhabi. SPVs incorporated in the ADGM will be under the regulatory supervision of the Financial Services Regulatory Authority (“FSRA”) and it will need to go through an entity registered with the FSRA. Like SPVs in the DIFC, there are no particular requirements for the characteristics of the SPV, targeted investors and subscription requirements. Learn more about how to set up a Special Purpose Vehicle in the ADGM here.
Kingdom of Saudi Arabia (KSA)
Saudi Arabia is regulated by the Capital Market Authority (“CMA”)and SPVs are required to go through an entity registered with the regulator. The SPV is only available to Sophisticated Investors or a number of one hundred (100) investors. Subscription requirement is set at no less than SAR 1,000,000.
Bahrain’s financial market is regulated by the Central Bank of Bahrain (“CBB”) and the SPV must be incorporated through a CBB registered entity. SPVs are allowed to target Accredited Investors. Subscription requirement for the CBB SPV is set at USD 100,000.
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