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Structuring joint ventures in Saudi Arabia
2 © Clifford Chance, 2015
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
contents
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 growingeconomies and brimming with business opportunities.
It is imperative to choose quality professional advisers to guide you throughthe complexities.
n There is no doctrine of precedent in Saudi Arabia and at times, it may appear as if Saudi Arabia laws and regulations arepotentially inconsistent with each other.
n The Saudi Arabian General Investment Authority (SAGIA) needs to approve any foreign investor before it can invest and conductbusiness 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 topof developments.
n Investors should prepare relevant documents in advance of the SAGIA application. Documents must be officially translated intoArabic, 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 3
The best route to market for investors
Do you need to establish a legal presence or can you carry out your business throughanother structure?
4 © Clifford Chance, 2015
Issues Considerations
Commercial agency: foreign manufacturers of goods andprincipals can only appoint local Saudi agents to sell theirproducts and/or services.
We have structured innovative arrangements allowingshareholders in joint ventures to participate.
Government tenders: joint venture with foreign shareholdermay be ineligible from participating.
Consider establishing branch or obtain temporarycommercial registration.
Choosing the right corporate vehicle: LLC vs JSC. LLCs are more flexible; less burdensome than JSCs.
Liability of shareholders: financial obligations where lossesare 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.
Saudization/Nitaqat: minimum requirements for employingSaudi nationals.
Certain jobs restricted to Saudi nationals.
Management: Full rights to appoint management structure. If powers are set in Articles, only an affirmative resolution of75% of the votes of shareholders can amend the Articles.
Statutory reserved matters: Certain matters require acertain threshold percentage of shareholders to vote inthe affirmative.
75% in affirmative to change Articles; 100% in affirmative toincrease financial burden of all shareholders and simplemajority to remove or replace the auditors.
Transfer of shares/exit: Requires amendment to Articles. In practice, the notary public requires all shareholders or theirattorneys attend before a notary public to sign.
Shareholders’ Agreements/Articles: Govern relationshipbetween shareholders and third parties.
In the event of a conflict, to minimise cost, we recommendagreeing a term sheet up front.
How to achieve a successfulinvestment in Saudi Arabia
© Clifford Chance, 2015 5
3 Finding the right partner is the most critical consideration.
3 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.
3 Review proposed activities with legal advisers in KSA as early as possible;understand the legal situation; consider SAGIA and MOCI requirementsand restrictions.
3 Check the “negative list” to make sure activities are not prohibited.
How to achieve a successful investment inSaudi Arabia continued
6 © Clifford Chance, 2015
Findinbg the right partner is the mostcritical cosideration.
Consider engaging an adviser tohelp you find the best partner.
Check the “negative list” to makesure activities are not prohibited.
Most first-time investors typicallycosider a local partner for afirst investment.
Review proposed activities withlegal advisers in KSA as early aspossible; understand the legalsituation; consider SAGIA and MOCIrequirements and restrictions.
How to achieve asuccessful investment inSaudi Arabia
Stable and committed toSaudi Arabia
Clifford Chance is Saudi Arabia’s leading transactional law firm and its first joint Saudiand foreign owned law firmOn 1 January 2014, we opened the Kingdom’s first joint Saudi and foreign owned law partnership when we integrated into ourpractice the transactional lawyers of Al Jadaan & Partners Law Firm with whom we have had a cooperation agreement since 1998.
Extensive on the ground presenceOur team consists of more than 30 permanently based Saudi and foreign lawyers and 20 support staffWe offer our clients access to a team of forward thinking legal experts with considerable insight of the local Saudi market. Our fivepartner team includes two of the leading and most awarded Saudi lawyers in the Kingdom, Abdulaziz Al Abduljabbar and Khalid AlAbdulkareem, 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 inhis role as special adviser and Clifford Chance will continue to maintain a co operation agreement with Al Jadaan.
Supporting the development of Saudi lawyersOur new model presents new opportunities for Saudi lawyers to train with and develop their careers in one of the world’s leadinginternational law firms, ensuring they benefit from an institutionalised career path and secondment opportunities throughout the CliffordChance global network.
© Clifford Chance, 2015 7
Pioneering and formidable team
We have worked on most of Saudi Arabia’s first of a kind deals and are known for ourpioneering approachWhile operating in cooperation with Al-Jadaan, the team’s cutting edge thinking and consistency in maintaining thehighest standards of quality, innovation and subject matter expertise culminated in the Clifford Chance Riyadh teamachieving 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 theSaudi 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.
8 © Clifford Chance, 2015
Acts for an impressive array of financial institutions and issuers, building up afirst-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 forits involvement in high-profile M&A.”Chambers Global 2014: Corporate & Commercial,Saudi Arabia – Tier 1
““
Joint venture experience
Our team have an unrivalled understanding of the business and legal environmentbased on advising on joint ventures in Saudi Arabia.
We regularly advise both the international and regional parties on their joint venturerequirements, allowing us to provide balanced advice to our clients.
© Clifford Chance, 2015 9
Abdul Latif JameelAbdul Latif Jameel in relation tothe establishment of a jointventure with Fotowatio RenewableVentures to look to participate insolar power generation
Virgin MobileVirgin Mobile on its joint venturearrangements with Saudi TelecomCompany to set up a mobilevirtual network operator inSaudi Arabia
DrägerDraeger Medical on itsretail/whole sale joint venture inSaudi Arabia with InternationalMedical Development Company
Mondelēz InternationalMondelez International on astrategic joint venture with OlayanGroup and Khalifa Algosaibi Groupin Saudi Arabia
STCSaudi Telecom Company on itsestablishment of a US$2 billionjoint venture business processoutsourcing company with Aegis
Aujan Industries Co.Aujan Industries Co. on the saleof approximately half of the equityin its beverage business to TheCoca-Cola Company forUS$980 million
Contacts
10 © Clifford Chance, 2015
Omar RashidPartnerT: +966 11 481 9720E: [email protected]
Khalid Al-AbdulkareemPartnerT: +966 11 481 9740E: [email protected]
Tim PlewsPartnerT: +966 11 481 9770E: [email protected]
Mike TaylorPartnerT: +971 4 362 0638E: [email protected]
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© Clifford Chance 2015
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