SCG’s REPO Financing Structure for GCC Markets

What are GCC Markets? 

GCC markets refer to the combined economies of the Gulf Cooperation Council (GCC) countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

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What is a REPO Financing Structure?

A Stock Loan Repo for SCG Global Stock Loan Originators to understand is not that much different than our regular loan product.  What it is simply is a Sharia-compliant financing arrangement that facilitates the temporary transfer of stocks between parties, for collateral purposes. Unlike conventional repurchase agreements that involve interest payments, this structure operates in accordance with Islamic principles by replacing interest with a maintenance fee, ensuring compliance with Sharia law and local securities regulations. The borrower provides stocks as collateral, and SCG provides liquidity or funding proceeds, with an agreement to revert the ownership at a later date, accompanied by a pre-agreed maintenance fee instead of interest.

This arrangement allows market participants in GCC countries to engage in stock lending activities within the boundaries of Islamic finance principles, promoting transparency and ethical compliance. It is an effective tool for managing liquidity, facilitating long-term capital needs, or meeting regulatory requirements, all while adhering to the principles of Sharia law by avoiding interest-based transactions.

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Available Markets in this REPO Structure:

 

• UAE United Arab Emirates Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX),

• Qatar

• Saudi Arabia

• Oman

• Bahrain

• Kuwait

• Egypt – although not part of GCC, it operates in the similar way

• Pakistan – although not part of GCC, it operates in the similar way

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Funding Flow of REPO’s with SCG

Due to the unique market norms of the GCC markets, this type of financing that SCG is making available would be of a REPO nature in order to comply with the local laws and regulations of Muslim law and/or Shariah law.

The Borrower/Seller will need to take the below steps to fulfill the financing requirements to acquire the capital they seek from SCG:

1. Borrower/Seller to onboard with SCGs custodian, in order to perform all necessary KYC and AML procedures.

2. When the onboarding and KYC/AML procedure performed at SCGs custodian is satisfactory, SCGs custodian will handhold the Borrower/Seller with the simple onboarding with the Country custodian here their shares exchange is located.

3. For individual Borrower/Seller, online onboarding at Country custodian can be performed, and it can be completed in 20 minutes.

4. For corporate Borrower/Seller, there are a few more forms to fill but SCG’s custodian will handhold the Borrower/Seller to complete the process

5. Once Borrower/Seller’s Country custodian account is set up, the Borrower/Seller may transfer his position to his account at Country custodian in the country where their shares exchange is located.

6. Once the Country custodian where their shares exchange is located confirms the position is in place, a block trade will be executed, where SCG will have Country custodian execute a block trade to purchase from the Borrower/Seller the position at the agreed discount (usually 50% discount block can be executed or required by regulations.)

7. For example, if the LTV agreed between SCG and Borrower/Seller is 60%, the block trade to execute with Country custodian will be at 50%, with the remaining 10% disbursement to be disbursed from SCG to Borrower/Seller at SCGs & borrowers custodian directly to Borrower/Seller’s account.

8. Borrower/Seller in return receives 50% of the agreed financing at T+2 after the block trade at Borrower/Seller’s local Country custodian account, with remaining 10% received at SCGs custodian and Borrower/Seller’s account. It is a two step process for funding each tranche.

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