Structuring joint ventures in Saudi Arabia

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Introduction ................................................................................................. 3 The best route to market for investors .................................................... 4 How to achieve a successful investment in Saudi Arabia ..................... 5 Stable and committed to Saudi Arabia .................................................... 7 Pioneering and formidable team .............................................................. 8 Joint venture experience ............................................................................ 9 Contacts ..................................................................................................... 10

© Clifford Chance, 2015

Introduction

Saudi Arabia is a complex jurisdiction for non GCC (Gulf Cooperation Council) investors with high transaction execution risks. But it is one of the fastest growing economies and brimming with business opportunities. It is imperative to choose quality professional advisers to guide you through the complexities. n There is no doctrine of precedent in Saudi Arabia and at times, it may appear as if Saudi Arabia laws and regulations are potentially inconsistent with each other. n The Saudi Arabian General Investment Authority (SAGIA) needs to approve any foreign investor before it can invest and conduct business in Saudi Arabia. n SAGIA issues foreign investment licences; each type of licence has its own requirements and restrictions. n SAGIA rules and practices change frequently. Clifford Chance maintains sound, regular contact with SAGIA to stay on top of developments. n Investors should prepare relevant documents in advance of the SAGIA application. Documents must be officially translated into Arabic, notarised, legalised, consularised and must receive official stamps from various ministries. n The SAGIA process can take between one to three months; some may take more than 12 months.

© Clifford Chance, 2015

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The best route to market for investors

Do you need to establish a legal presence or can you carry out your business through another structure? Issues

Considerations

Commercial agency: foreign manufacturers of goods and principals can only appoint local Saudi agents to sell their products and/or services.

We have structured innovative arrangements allowing shareholders in joint ventures to participate.

Government tenders: joint venture with foreign shareholder may be ineligible from participating.

Consider establishing branch or obtain temporary commercial registration.

Choosing the right corporate vehicle: LLC vs JSC.

LLCs are more flexible; less burdensome than JSCs.

Liability of shareholders: financial obligations where losses are equivalent to 50% or more of paid in share capital.

LLC should not be thinly capitalised. Impose checks to monitor finances. Consider protections if minority shareholder.

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Saudization/Nitaqat: minimum requirements for employing Saudi nationals.

Certain jobs restricted to Saudi nationals.

Management: Full rights to appoint management structure.

If powers are set in Articles, only an affirmative resolution of 75% of the votes of shareholders can amend the Articles.

Statutory reserved matters: Certain matters require a certain threshold percentage of shareholders to vote in the affirmative.

75% in affirmative to change Articles; 100% in affirmative to increase financial burden of all shareholders and simple majority to remove or replace the auditors.

Transfer of shares/exit: Requires amendment to Articles.

In practice, the notary public requires all shareholders or their attorneys attend before a notary public to sign.

Shareholders’ Agreements/Articles: Govern relationship between shareholders and third parties.

In the event of a conflict, to minimise cost, we recommend agreeing a term sheet up front.

© Clifford Chance, 2015

How to achieve a successful investment in Saudi Arabia 3

Finding the right partner is the most critical consideration.

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Consider engaging an adviser to help you find the best partner.

3

Most first-time investors typically consider a local partner for a first investment.

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Review proposed activities with legal advisers in KSA as early as possible; understand the legal situation; consider SAGIA and MOCI requirements and restrictions.

3

Check the “negative list” to make sure activities are not prohibited.

© Clifford Chance, 2015

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How to achieve a successful investment in Saudi Arabia continued

6

How to achieve a successful investment in Saudi Arabia

Findinbg the right partner is the most critical cosideration.

Consider engaging an adviser to help you find the best partner.

Most first-time investors typically cosider a local partner for a first investment.

Review proposed activities with legal advisers in KSA as early as possible; understand the legal situation; consider SAGIA and MOCI requirements and restrictions.

Check the “negative list” to make sure activities are not prohibited.

© Clifford Chance, 2015

Stable and committed to Saudi Arabia Clifford Chance is Saudi Arabia’s leading transactional law firm and its first joint Saudi and foreign owned law firm On 1 January 2014, we opened the Kingdom’s first joint Saudi and foreign owned law partnership when we integrated into our practice the transactional lawyers of Al Jadaan & Partners Law Firm with whom we have had a cooperation agreement since 1998.

Extensive on the ground presence Our team consists of more than 30 permanently based Saudi and foreign lawyers and 20 support staff We offer our clients access to a team of forward thinking legal experts with considerable insight of the local Saudi market. Our five partner team includes two of the leading and most awarded Saudi lawyers in the Kingdom, Abdulaziz Al Abduljabbar and Khalid Al Abdulkareem, and recognised English lawyers, Omar Rashid and Paul Latto. Tim Plews manages the office. Mohammed Al Jadaan remains Managing Partner of Al Jadaan, and together with partners Yousef Al Jadaan and Abdullah Al Hashim, will focus on litigation, mediation, legal strategies and structuring related advice. Mohammed continues to support Clifford Chance in his role as special adviser and Clifford Chance will continue to maintain a co operation agreement with Al Jadaan.

Supporting the development of Saudi lawyers Our new model presents new opportunities for Saudi lawyers to train with and develop their careers in one of the world’s leading international law firms, ensuring they benefit from an institutionalised career path and secondment opportunities throughout the Clifford Chance global network.

© Clifford Chance, 2015

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Pioneering and formidable team

We have worked on most of Saudi Arabia’s first of a kind deals and are known for our pioneering approach While operating in cooperation with Al-Jadaan, the team’s cutting edge thinking and consistency in maintaining the highest standards of quality, innovation and subject matter expertise culminated in the Clifford Chance Riyadh team achieving a number of firsts: n the first book-built IPO in Saudi Arabia n the first Saudi Medium Term Programme n the first privatisation in the privatisation programme of the non core divisions of Saudi Arabian Airlines by the Saudi Arabian Government n documenting the first total return swap providing access for foreign investors to listed Saudi Arabian shares n the first project finance without conventional commercial lending but Islamic finance n US Exim’s first Saudi project financing n the first bond issued by a Saudi issuer to be cleared and settled through the Saudi Arabian stock exchange n structuring and documenting the first sukuk in the world with underlying assets being real estate in the holy city of Makkah n the first ever takeover of a publicly listed company in Saudi Arabia under the Capital Market Authority regime.

“ “

Acts for an impressive array of financial institutions and issuers, building up a first-rate track record over many years.” Chambers Global 2014: Capital Markets, Saudi Arabia – Tier 1

A thriving corporate and commercial practice that earns considerable praise for its involvement in high-profile M&A.” Chambers Global 2014: Corporate & Commercial, Saudi Arabia – Tier 1

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© Clifford Chance, 2015

Joint venture experience

Our team have an unrivalled understanding of the business and legal environment based on advising on joint ventures in Saudi Arabia. We regularly advise both the international and regional parties on their joint venture requirements, allowing us to provide balanced advice to our clients.

Abdul Latif Jameel

Virgin Mobile

Dräger

Abdul Latif Jameel in relation to the establishment of a joint venture with Fotowatio Renewable Ventures to look to participate in solar power generation

Virgin Mobile on its joint venture arrangements with Saudi Telecom Company to set up a mobile virtual network operator in Saudi Arabia

Draeger Medical on its retail/whole sale joint venture in Saudi Arabia with International Medical Development Company

Mondelēz International

STC

Aujan Industries Co.

Mondelez International on a strategic joint venture with Olayan Group and Khalifa Algosaibi Group in Saudi Arabia

Saudi Telecom Company on its establishment of a US$2 billion joint venture business process outsourcing company with Aegis

Aujan Industries Co. on the sale of approximately half of the equity in its beverage business to The Coca-Cola Company for US$980 million

© Clifford Chance, 2015

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Contacts

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Omar Rashid

Khalid Al-Abdulkareem

Partner T: +966 11 481 9720 E: [email protected]

Partner T: +966 11 481 9740 E: [email protected]

Tim Plews

Mike Taylor

Partner T: +966 11 481 9770 E: [email protected]

Partner T: +971 4 362 0638 E: [email protected]

© Clifford Chance, 2015

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