Saudi Capital Market Authority (CMA) has licensed “Itqan Finance” as the first private-purpose entity to provide asset-backed debt instruments in accordance with the rules governing special purpose entities issued by the Authority.
This license is the first in Saudi Arabia to establish a facility of special purposes where the entity is legally independent and has the financial disclosure, and it is terminated when reaching the goal for which it was established.
One of the most important objectives of establishing a special purpose entity is to obtain financing through an alternative for bank loans and financial institutions. This is done by issuing debt instruments through a special purpose entity and transferring assets to the facility to convert asset-related risks or restricting commitments relating to debts' instruments.
It also aims to protect the rights of investors, holders of debt instruments, from the bankruptcy of entities associated with the enterprise as the sponsors or owners.
The move is complementary to the role of CMA in organizing and developing the financial market, in an effort to develop the sukuk market, debt instruments and diversify sources of finance for public and private sector projects, which are part of the Authority's strategy to facilitate financing in line with Saudi Financial Sector Development Program.
It is noteworthy that on 27 December 2017, the Authority issued the rules to regulate the establishment, licensing, registration, offering and management of special purposes entities and associated activities in the Kingdom.
On April 1, 2018, the rules regulating special purpose enterprises entered into force.
