KUWAIT Law and Practice Contributed by: Ezekiel Tuma, John Cunha and Luis Cunha, ASAR – Al Ruwayeh & Partners
4. Stakebuilding 4.1 Principal Stakebuilding Strategies It is not unusual for a bidder to build a stake prior to launching an offer. Common strategies for stake - building in Kuwait are to build a stake through off- market trades, where an acquirer and a seller agree in advance on a trade at an agreed price and quantity, or through block trades, where an acquirer purchas - es 5% or more of a company’s share capital. Certain restrictions apply in relation to the pricing of such sales. Where a stakebuilding strategy results in a person acquiring 5% or more of the voting shares in a com - pany listed on Boursa Kuwait (the disclosure thresh - old), that person must disclose the acquisition to the listed company concerned, Boursa Kuwait and the CMA. Mandatory takeover provisions would also apply where the total stake in the target’s share capital exceeds 30% unless an exception applies. 4.2 Material Shareholding Disclosure Threshold An obligation to disclose a transaction to the CMA and Boursa Kuwait is triggered once the disclosure threshold is met, and the purchaser concerned is required to file certain share disclosure notices with the listed company, Boursa Kuwait and the CMA (the initial disclosure) within five business days. In addition, further disclosure obligations apply with respect to any change of more than 0.5% of the target’s capi - tal (be it an increase or a decrease) in shareholdings (subsequent disclosure). A disclosure notice must also be filed where the share interest in a listed company in Kuwait falls below the disclosure threshold (final disclosure). Touched on above, an acquisition of more than 30% of the share capital of a listed company in Kuwait trig - gers a mandatory takeover and the disclosure require - ments that accompany such a transaction. 4.3 Hurdles to Stakebuilding The minimum reporting thresholds are statutory and cannot be changed to lower thresholds in a compa - ny’s articles of association. However, subject to MOCI
approval, higher reporting thresholds can be provided in the articles of association. Hurdles to stakebuilding include insider trading regu - lations. A shareholder is not able to stakebuild during the prescribed blackout periods or while holding insid - er information. Additionally, creep provisions under the CML Bylaws only allow for a person in control of a listed company to sell or purchase no more than 2% semi-annually for ownerships of 30% to 50% and no more than 5% semi-annually for ownerships of 50% to 100%. Exceeding these thresholds triggers the mandatory takeover regime. 4.4 Dealings in Derivatives Dealings in derivatives may be permitted, depending on whether the derivatives are considered tradable or non-tradable and provided they do not amount to “Financial Derivatives” that are related to the interest rates relevant to the Kuwaiti dinar (KWD) or the for - eign exchange rates of KWD which may not be issued unless approved by the Central Bank of Kuwait. “Financial Derivatives” are defined in the CML Bylaws as “financial instruments, the value of which is derived from the value of the relevant assets such as shares, bonds, commodities and currencies, which are pur - chasable, sellable and tradable similarly to shares or other financial assets. Financial Derivatives are con - sidered securities subject to the provisions of the Law and these Bylaws.” In the case of a tradable derivatives transaction, the tradable derivative should be considered a “security” under Kuwait law. A “security” is defined under the CML Bylaws as any document, regardless of its legal form, that evidences a share in a tradable financing transaction licensed by the CMA, such as: • shares issued or proposed to be issued in the capi - tal of a company; • any instrument that creates or acknowledges a debt issued or to be issued by a company; • loans, bonds, sukuk and other instruments that can be converted into shares in the capital of a com - pany;
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