Founder shareholders of an Oman independent power and water project company often seek to divest themselves of a portion of their project company shares after the project company’s successful conversion to an SAOG in accordance with the Founders’ contractual obligations with respect to the project, and the expiry of any period in which the Founders’ right to dispose of their shares is contractually restricted.
This type of share sale transaction, being the sale of Founders’ shares in an electricity and water sector SAOG, may be subject to particular statutory approvals (e.g., under the Sector Law), and specific approvals and conditions precedent under the project and finance agreements, to which an ordinary SAOG share sale would not be subject.
Identifying Requisite Approvals and Conditions Precedent at the Outset
At the outset of the proposed share sale, the selling founder should comprehensively identify the legal and regulatory approvals required in relation to the transaction under the Sector Law, the project company’s licence and the Capital Market Law. In addition the project and finance agreements should be reviewed to identify any approvals required from either the project agreement counterparties or the project lenders, and the conditions to be satisfied to obtain such approvals. All such approvals should be identified and sought at the earliest possibility to ensure that the share sale can proceed in accordance with the law and will not be delayed. Notification to the potential buyer or bidders information memorandum and instructions to bidders in the event of a competitive bidding process) as to the applicable regulatory regime and required approvals before the share sale can be effected is also advisable.
The Sector Law requires approvals of the Authority for Electricity Regulation (“AER”) and compliance with conditions set out in the project company’s Sector Law Licence. The approvals required under th Sector Law or the Licence may relate to:
Capital Market Authority (“CMA”)
A review of the Capital Market Law,3 its Executive Regulations,4 other internal CMA regulations and the Muscat Securities Market Trading Rules will be necessary to establish the necessary CMA approvals. For example:
The parties may also be interested in implementing a transaction completion structure that minimizes transaction fees and ensures closure of the transaction in the most expeditious manner.
Shareholders’ and Founders’ Approval
Restrictions and conditions applicable to a Founder’s sale of shares in an Oman independent power and water project company are typically found in a Founders’ shareholders’ agreement (if this still subsists after the company’s conversion to an SAOG). Generally for these projects, the “project founders agreement” between the Founders and Electricity Holding Company SAOC (“EHC”) also requires each transferee of a Founders’ share to accede to and become an additional party to the agreement by the execution of an accession agreement, which requires the approval of all other project company Founders and EHC. Typically, however, no other project agreement counterparty approval is required under the applicable project agreements.
A review of the project’s finance documents will be necessary to determine whether the approval of the project lenders is required. The project company could well be obliged to inform the lenders of the proposed Founder’s share sale under the project facility agreement. However, the selling Founder itself could also be obliged to obtain the lenders’ consent to the proposed share sale, and satisfy the conditions of such consent, under some form of project sponsors’ support agreement, i.e., an agreement under which the Founders undertake to provide some sort of financial support to the project company in certain circumstances. Typically, the buyer will be required to accede to the project sponsors’ support agreement by execution of an accession agreement and assume the seller’s project support obligations thereunder.
Share Purchase Agreement
A share sale and purchase agreement (“SPA”) in respect of a Founder’s shares in an Oman power and water project company has over the last few years arguably adopted something of a “market standard” form. Typically, the project company has converted to an SAOG before the sale transaction and, accordingly, much of the company information and documentation normally disclosed and warranted
under an SPA with respect to a different kind of company is publicly disclosed on the Muscat Securities Market website. Usually, only matters affecting the seller’s title to the sale shares, such as encumbrances (for example, any pledge in favor of the project lenders and the procurement of its release prior to the sale) will be disclosed and warranted by the seller under the SPA. If the seller has undertaken a management role in respect of the project company during the period in which it was a founding shareholder of the project company, business warranties may also be relevant. The closing and payment arrangements will also be set out in the SPA.
When it comes time to implement the transaction, if the parties retain the same broker for both the sale and the purchase of the shares, the transaction can usually be completed on the same day. It is therefore both expedient and less costly for the parties to complete the transaction in this manner. Careful co-ordination with the project company lenders will also be necessary to remove the share pledge prior to sale, and its re-imposition in the hands of the buyer immediately upon purchase. For this purpose, it will be necessary to obtain from the lenders a pledge release letter to enable the Muscat Depository and Securities Registration Company to facilitate this process.
1 S. 112(2) of the Sector Law.
2 S. 110(d) of the Sector Law.
3 The Capital Market Law promulgated by Sultani Decree 80/90.
4 The Capital Market Law (Administrative Decision 1/2009) issued by the CMA.