16 March 2015

Angola capital market reform

This article was written by João Couceiro (Advogado, FCB&A) and Cláudia Fernandes Veloso (Advogado, FCB&A).

Being the second largest oil producer in Africa, Angola has experienced an exciting economic growth over the last few years, which has led the Angolan Government to implement some significant legal reforms and make significant investments to diversify the local economy by promoting sectors outside of the oil industry. Particularly given that the oil price has fallen by more than 50% over the last 6 months, the Angola Government is clearly concerned about the potential consequences of an unsustainable development entirely based on the oil industry.

The Government also recognizes that the country’s development requires foreign investment and expertise, thus most of the legal reforms being approved reveal a major effort from the local government to balance the need of attracting foreign investment with the risk of destabilizing the country’s currency exchange balance.

On the other hand, the Angolan Government is aware of the fact that capital markets are a vital element of the financial sector. As a vehicle for long-term investment finance and for diversification of funding sources, capital markets strengthen the overall economy and render it more resilient in the face of economic shocks.

The development of a collective investment regime

In this context, the Angolan Government approved the Presidential legislative decree 7/13 of 11 October 2013, which establishes the Legal Framework of Collective Investment Undertakings (“RJOIC”).

Collective Investment Undertakings (“OIC”) are collective investments entities that integrate contributions collected from the public, with the scope of obtaining collective investments in capitals, according to the principle of risk sharing and the principle of acting in the exclusive interest of the investors (i.e., the participants).

OICs can adopt either the form of an investment fund (autonomous entity without legal capacity) or the form of an investment company.

Depending on the assets that will be comprehended in the respective portfolio, OICs can be classified as Real Estate Investment Funds or Companies, on one hand, or, on the other hand, Securities Investment Funds or Companies, when the assets that are the target of respective investments are securities.

In any case, the greatest virtue of RJOIC is to incorporate under a single document the legal framework of OICs. Additionally, another major goal of RJOIC is that such framework is at the same level of the most sophisticated European jurisdictions (and most probably was inspired in the European Union Directive that regulated such matter), which may contribute to making Angola a reference point for African capital markets.

The Angolan Capital Markets Commission

Moreover, the Angolan Capital Markets Commission (“Comissão do Mercado de Capitais” or “CMC”), as the entity that authorises, regulates and supervises OICs, has been very active and committed on the development of then capital markets in Angola, has recently issued Regulation 4/14, of 30 October 2014, that regulates (in a very deep and complete way) the legal framework of OICs.

As such, RJOIC, together with the referred to Regulation, details in depth the OIC’s legal framework, including, inter alia, incorporation (for companies) or establishment (for funds) criteria, rights and obligations of bodies and entities related to the OICs (e.g., participants, shareholders, managing entities and depositaries) and operations related to the structure of the OICs such as  mergers, demergers, conversions dissolutions  and liquidation. In addition, the RJOIC introduces a new concept related to the possibility of creating groups of OIC managed by the same entity, with the aim of facilitating share transactions. 

Self-managed OICs

On the other hand, RJOIC also adopted a revolutionary concept proposed by the European Union Directive mentioned above, allowing the possibility of investment companies being self-managed (i.e., without need to be managed by a management entity). This fact, because it simplifies the managing structure of the OIC and is less expensive, will most likely promote the incorporation of such type of OICs. 

Venture Capital OICs

In relation to the legal framework applicable to Venture Capital OICs, notwithstanding the Capital Market Commission has already disclosed a preliminary version of this regime, for public consultation, the approval of the same is eagerly awaited and is on the verge of being approved by the Angolan Government. In general terms, this preliminary version foresees the procedure of authorization, registration, incorporation and management of Venture Capital OICs, Venture Capital Companies and Venture Investors. 

As for the legal nature, Venture Capital OICs may also take the form of a fund or, alternatively, the form of a public limited liability investment company. In case the Venture Capital OICs is structured as a fund, it will have to be managed by an Investment Fund Management Company, also necessarily a public limited liability company. In case the Venture Capital OICs is structured as an investment company, it may manage itself or be managed by an Investment Fund Management Company. 

This preliminary version also foresees that Venture Investors should take the form of a sole shareholder company.

The Securitised Public Debt Regulated Market

The Angolan Government has also approved the Legal Regime concerning the Securitised Public Debt Regulated Market which creates, alongside the stock market and over-the-counter (OTC) organized markets mechanisms, the public debt regulated market with a different negotiation system, which permits the trade of Angolan securitized public debt, as financial instruments capable of attracting the growing interest of financial market investors.

Management Regulated Markets Company

The existence of these markets (stock market, OTC organized market, and market regulated by public debt) leads to the need of the creation of a Management Regulated Markets Company (“Sociedade Gestora de Mercados Regulamentados” or “SGMR”) as a financial institution responsible for the management of the financial instruments negotiation mechanisms. 

The first Angolan Management Regulated Markets Company, Angolan Debt and Stock Market (“Bolsa de Dívida e Valores de Angola” or “BODIVA”) and Angolan Securities Centre (“Central de Valores Mobiliários de Angola” or CEVAMA) were established as entities responsible for securities settlement, compensation and custody, traded in Angola.

In fact, despite the fact that the Stock Exchange Market has not yet been created, the President of the Capital Market Commission clarified that BODIVA was created precisely as an alternative to a traditional stock exchange, given that the negotiation can occur in different structures, and may even, in some cases, occur simultaneously. 

According to the President of the Capital Market Commission "The Stock Exchange Market, as we understand it, is not exclusive condition for the securities market to start and run, given that there are other mechanisms that may arise, including the over-the-counter organized market and the Special Public Debt Market”.

As a result, as of January 2015, four Management Companies of Collective Investment Undertakings, two real states OICs, three management companies OICs and two Stock Brokers were registered in the Capital Market Commission a Management Regulated Markets Company. 

It is clear that the capital markets in Angola are in their infant stage of development and that only time will tell how the laws will be implemented in practice or what form these will eventually take. However, it is a good demonstration of the direction that the Angolan Government is taking with regards to capital markets, being the pursuit of diversification of alternate forms of investment (and exits into the country). It is important for potential investors in these sectors to be aware of these changes when considering investing in Angola.

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