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Thursday, 25 November 2021

Securitize that

A new form of securitization is closer to being introduced to the Egyptian market after cabinet yesterday green-lit amendments to the Capital Markets Act at its weekly meeting. The statement was short on details but the Financial Regulatory Authority later clarified that the changes are related to its proposals from earlier this year to allow utilities and other companies to raise capital by securitizing future cashflows.

Introducing future flow securitization: The instrument allows companies that provide services to the public a new way of accessing liquidity. Unlike standard securitization which requires a large portfolio of accounts receivables, future flow transactions allow companies to sell securities backed by future income i.e. assets that do not yet exist on the company’s balance sheet. This would open securitization to new companies in sectors such as utilities, telecoms, healthcare and education by allowing them to use future phone bills, utility payments, tuition fees and rental payments as securitizable assets.

The changes could spur infrastructure spending: Companies that provide basic amenities will be able to issue tradable future-flow bonds to fund big-ticket spending on infrastructure, road, and transport projects without needing to wait for payments from their clients.

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