Special Purpose Entities facilitate corporate debt issuance, says CMA

Saudi Arabia's Special Purpose Entities (SPEs) allow listed companies and closed joint stock companies to secure finance through issuing debt instruments and transferring the sponsor's assets to SPEs, two officials at the market regulator told Argaam in an exclusive on Thursday.

This move allows companies to transfer asset-linked risks to SPEs and protect investor interests.

The new entities will help promote issuance of government debt instruments, in line with the Capital Market Authority's (CMA) plan to strengthen the local bond and sukuk market, they added.

Under the regulations issued by the Saudi market regulator, SPEs are financially independent from the sponsor and liabilities are recognized in their financial statements, Fahad Bin Hamdan, Deputy Assistant of Listed Companies & Investment Products at CMA, said.

These entities are to be terminated upon debt fulfillment.

"We're planning to include investment funds under SPEs," Bin Hamdan added, explaining that the asset of such funds are currently registered under the custodian's name due to the lack of a legal entity for the fund.

Meanwhile, Abdulla S. Al Sayyari, Director of SPEs, said: "Asset-linked recourse or asset-backed instruments will be fully separate from any potential impact on the sponsor's assets and operations."

SPEs are only subject to the capital market law and are monitored by the Saudi market regulator.

In addition, no conditions were set for SPE's capital or the debt instrument structure, Al Sayyari added.

SPE's debt instruments include asset-backed and asset-linked recourse debt instruments. Debt-based recourse debt instruments are also available.

The rules regulating SPEs came into effect last April.