ADGM SPVs for securitisation Vehicles:
What is the ADGM?
The Abu Dhabi Global Market is an international financial centre for local, regional and international institutions, established in Abu Dhabi, the capital of the United Arab Emirates, and operational from 2015. It has been voted the ‘Financial Centre of the Year (MENA)” and has continuously brought out innovative solutions for the growing financial services market in the region.
ADGM has three independent authorities – the Registration Authority, the Financial Services Regulatory Authority (FSRA) and ADGM Courts. ADGM entities are established under Common Law. Whereas other jurisdictions codify the English common law, the ADGM has adopted it completely in its original form. This is implemented to help facilitate ease of doing business for foreign investors – a first in the region.
What is an SPV?
Special Purpose Vehicles, or SPVs, are usually established to isolate financial and legal risk by ring-fencing assets and liabilities. SPVs can be established as subsidiaries, project or joint venture vehicles to ensure that only those assets related to a transaction are exposed to the liabilities associated with that transaction.
Features of an ADGM SPV:
An ADGM SPV offers multiple classes of shares, including fractional shareholding, a first for the region. Coupled with an option to completely customise the Memorandum / Articles, the ADGM SPV provides a viable option for a range of holding and investment structures.
Other salient features include:
- No attestations for corporate documents – certified copies suffice.
- No restrictions on nationality of ownership.
- Minimum requirement of just 1 shareholder and 1 director – can be non-resident.
- At lease one UAE-resident or GCC-national authorised signatory required.
- No minimum share capital.
- No maximum number of shares.
ADGM SPV Setup Process:
Click here to read a comprehensive guide on ADGM SPVs.
What is securitisation?
Some transactions involve the transfer of assets or risks into special purpose vehicles, and then the transformation of such assets or risks into securities that can be traded.
A major advantage of securitisation is the creation of liquidity for the originator of the transaction, and in some cases, the shifting of risks from the balance sheets of corporate issuers.
Securitisation transactions are also commonly used to secure additional funding.
How does securitisation help businesses?
Businesses that wish to convert their illiquid assets into tangible cashflows can use factoring or securitisation as options.
Both structures allow the business to sell it’s assets, such as accounts receivables, to third parties at discounted prices. Factoring is primarily used where the third-parties are banks or financial institutions, and securitisation structures are used to access monies from the wider market, including capital markets.
Two objectives are achieved here – a) assets are transferred into a separate legal entity so that investors can access them and b) a potential capital market instrument is created.
The assets that are transferred into the ADGM SPV are ring-fenced for the benefit of the investors of the SPV, i.e. creditors of the originating company do not have access to these assets.
The SPV is then able to issue securities based on these underlying assets.
What are the benefits of setting up a securitisation vehicle in the ADGM?
In the ADGM, securitisation of a wide range of assets, loans, bonds, incomes and risks is allowed. In addition to this, risks related to debt, movable or immovable property, tangible and intangible assets are also allowed to be securitised.
In general, anything that is a store of future income can be securitised in the ADGM.
The ADGM SPV is governed by Common Law, and it’s direct applicability in the ADGM provides legal certainty and comfort to foreign investors. SPVs also have access to the ADGM Courts, which provides a mechanism for registration and enforcement of contracts, again under Common Law.
There are no restrictions on foreign ownership in the ADGM, and so ADGM SPVs can issue 100% of it’s securities and shares to foreign nationals.
The ADGM SPV is a low-cost and flexible vehicle. There are no office-space requirements (the services of an ADGM registered agent would suffice), and multiple classes of shares are allowed.
Also, an ADGM SPV has access to the extensive Double Taxation Avoidance Treaty Network that the UAE has in place with most major countries around the globe. In this case, there are additional requirements to fulfil from the Ministry of Finance.
The ADGM is a zero-tax jurisdiction and there are no corporate, withholding or income taxes in the centre. 100% of the profits of an ADGM SPV can be repatriated.
What is the process of securitisation in the ADGM?
Why setup a securitisation vehicle?
An ADGM securitisation vehicle can offer the following benefits to the issuers of the securities:
Liquidity – Some assets cannot be sold, but still generate regular income streams. These assets can be securitised, and hence provide the issuer with liquidity, while still maintaining ownership of the asset.
Access to capital markets – The rating of the issuer and the issued security may differ. For instance, the corporate originator may have a BB rating, however, the high-quality assets that are securitised may result in an AAA rating for the securitisation vehicle. In such scenarios, the corporate may be able to access funds at lower interest rates.
What legal forms are available for securitisation SPVs in the ADGM?
An ADGM SPV is usually set up as a Private Company Limited by Shares.
How can we at 10 Leaves help you?
The ADGM Company Service Provider Regulations come into effect in April 2021.
All ADGM Special Purpose Vehicles* are now required to appoint a Company Service Provider to carry out company secretarial and registered agent services. The ADGM Company Service Provider will be the point of contact between the ADGM Registration Authority and the SPV.
10 Leaves is a Service Provider in the ADGM and offers the following services to ADGM SPVs
- Incorporation Agent – assistance in setting up the SPV.
- Registered address – providing the registered office.
- Provision of directors.
- Provision of company secretaries.
- Provision of Authorised Signatories.
- Provision of nominee shareholders.
- Provision of accounting services.
- Customisation of the Articles of Association.
- ESR Filings and notifications.
- Pledge Arrangements and registration.
- Translations and attestations.
- Assistance in bank account opening.
In addition to the above, we offer corporate and commercial services through 10 Leaves Legability. These include shareholding agreements, IP agreements, Share vesting plans and agreements and ESOPs.
For startups, we offer structuring solutions, including issuance of warrants, SAFE notes, convertibles and maintenance of cap tables.