An investment fund either established in or outside Oman which aims to issue Securities1 for public or private subscription by investors located in Oman, should obtain a license from the Capital Market Authority (the “CMA”) and the offering of such Securities must be conducted in accordance with such fund’s prospectus as set out in Article 3 of the Capital Market Law (the "CMAL”).
In preparing its prospectus, a fund must consider its contents and what disclosures are required to be made to prospective investors, all of which must be viewed in light of the anti-fraud provisions set forth in the CMAL that apply to the preparation of a prospectus. Namely, Article 3 of the CMAL provides that “any omission or avoidance of any material information or the inclusion of incorrect statements or information shall be the responsibility of the entity preparing the prospectus.” Further, Chapter 5 of the CMAL sets forth the punishments that may apply to those persons who run afoul of the anti-fraud provisions.
Prospectus Requirements under the CMAL
As a fund’s prospectus must include all material information relating to such fund and the offering of its Securities, the issuer of the prospectus is left to determine what information is “material” and must be included in the prospectus. The CMAL is fairly limited in detailing the information required to be included in a prospectus.
- Article 3 of the CMAL generally provides that the prospectus must include all financial statements and information relating to the fund.
- Article 35 of the CMAL provides a limited scope of additional required information to be contained in the prospectus. A fund’s prospectus must contain: (i) the investment policy to be followed; (ii) the manner of distribution of annual profits and the method of dealing with capital profits; (iii) the name of the entity who will undertake the management of the fund and a comprehensive summary of its previous activities; and (iv) the method of regular evaluation of the funds and assets and the procedures for the return of the value of the fund’s investment bonds.
- The Executive Regulations to the CMAL (the “Executive Regulation”) gives some guidance as to what information a fund’s prospectus should contain. The Executive Regulation provides in Article 7 that the prospectus should include all necessary information that would allow an investor to take an accurate investment decision.
- The Executive Regulation further states that in the event the issuer of a prospectus conceals material information to protect the interest of the issuer and the investor, the same should be indicated in the prospectus showing the reasons and justification for the same and its impact of the issuer and the investor.
Other than the above requirements set forth in the CMAL and the Executive Regulation there is no further guidance on what information should be placed in the fund’s prospectus. With the absence of any further guidance, a fund is left to reconcile whether disclosing the information required by Articles 3 and 35 of the CMAL and Article 7 of the Executive Regulation are sufficient to comply with the anti-fraud provisions –; namely, would this information constitute all of the material information necessary to be included in the prospectus. The risk of relying solely on the guidance provided in the CMAL and Executive Regulation is that an investor may be able to successfully argue that information outside of the scope of these Articles would be material to such investor’s participation and that the failure to include such information is a violation of the anti-fraud provisions under the CMAL. Accordingly, a fund will want to take a comprehensive approach in preparing its prospectus and seek to meet prospective investors’ expectations for what a prospectus should include. As the CMAL would seemingly only specify some (but not all) material information that must be included in the prospectus, a fund is left to look elsewhere to determine what information should be included in the prospectus in order to comply with the anti-fraud provisions. Two sources of relevance for these purposes are (i) reviewing the international market standards for preparing prospectuses and (ii) the ILPA Private Equity Principles.
International Market Standards for Prospectus Contents
As the laws governing a majority of international capital markets include anti-fraud provisions similar to those contained in the CMAL, a fund could look towards the international market standards for preparing prospectuses to determine what information sponsors and management deem reasonably necessary to be disclosed in order to comply with the relevant anti-fraud provisions. Typically, an international investment fund’s prospectus would cover the following areas: investment strategy; risk factors; information on the fund’s management (both entities and individuals); compensation (including management/advisory fees and incentive compensation); other fees and expenses of the fund (including organisational expenses and operating expenses); “key man” provisions; overview of the fund’s governing agreement (i.e., articles of association); conflicts of interest; side letters; investment, withdrawal and transfer procedures; and valuation and brokerage. Where a fund’s prospectus covers these areas in reasonable detail in addition to the requirements specified under the CMAL, such fund may be well on its way to satisfying the anti-fraud provisions of the CMAL.
ILPA Private Equity Principles
A second valuable resource to a fund when preparing its prospectus would be the ILPA Private Equity Principles, which would provide insight into the information that an institution investor would typically expect to see in an investment fund’s prospectus (or other diligence materials). The Institutional Limited Partners Association (“ILPA”) is an association of institutional limited partners that regularly invest in investment funds that come together to establish best practices regarding fund partnerships between fund managers and the investors (the “Principles”). The Principles are meant not only to involve discussions and negotiations of terms between management and investors, but also aim to provide guidance to funds as to what terms are of material importance to such investors. These investors typically seek to confirm whether a fund complies with the Principles by conducting a lengthy and detailed due diligence process on such fund. As the Principles are publicly available materials, a fund could seek to prepare its prospectus with the Principles in mind recognising that the information set forth therein is generally considered material by investors.
In summary, an investment fund seeking to access the capital markets in Oman should take great care and consideration in preparing its prospectus to ensure that, in light of the anti-fraud provisions under the CMAL, it includes all material information and does not include any incorrect information. A thoroughly detailed and accurate prospectus also provides a “shield” against claims by investors or regulatory authorities that a prospectus was misleading and would serve to protect the fund against such claims.
1. Capitalised terms used herein but not otherwise defined have the meanings given to them in the Oman Capital Market Law (Royal Decree 80 of 1998) (the “CMAL”)↩