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lexismiddleeastlaw.ae | June / July 2014 | Lexis Middle East Law Alert |2020

WhAT’s nexT?We're focused on maintaining our educational standards and ensuring our growth continues in a controlled, managed way regionally to continue to meet the demands of increasing GDP and population. We're also watching to see how the UAE develops

as a financial centre and are looking at expansion opportunities in Africa and Asia and key international cities like New York and Singapore where quality private education is always in demand. We're also considering our ability to continue to raise capital regionally and how financial regulations will develop.

PrACTiTioner PersPeCTive

Amjad Hussain of K&L Gates LLP explores education regulation and project financing in the GCC.

In the last decade, GCC countries have been looking at moving from predominantly hydrocarbon based economies to knowledge based ones. The UAE and Qatar are making the most impact in this area but Saudi Arabia has also

embarked on a series of reforms of its commercial and religious education curricula to address the challenges that lie ahead in providing employment for its rapidly expanding young, school-age population. Qatar has also conducted a wholesale review of its education system together with international advisors to ensure it matches the population’s needs and its students have the skills required to support the Qatari economy. As part of this, the Supreme Education Council and Ministry of Education have been reforming various aspects of the Qatari education system. Reform is not just curriculum-based but also focuses on ensuring health and safety standards are maintained and strengthened where applicable. For example, following the Villagio Mall fire where 13 children and six adults died after a fire in 2012, Qatar Law No. 1/2014 on the regulation of private nurseries has been introduced. Kuwait has also introduced a new law, Kuwait Law No. 22/2014 regulating private nurseries. Institutions like Dubai’s Knowledge Village, the Qatar Foundation, Qatar Science and Technology Park and Education City have also been established to try to avoid the so-called expatriate 'brain drain' whereby foreign skilled workers are forced to leave the region to improve their children's education prospects.

Key ConsiDerATionsWho you are plays a part in how easy it is to get a school project off the ground. For example, an institution like Cambridge University would be unlikely to have any trouble establishing a research and development project in the region but a less well known establishment would probably not find it so easy. The institution’s proposed location can also have an impact.

If the school is being built outside of a free zone, the normal foreign ownership rules will apply and the institution will need to ensure it has a local sponsor. In Qatar, schools can be exempted from the foreign ownership requirements. They can be 100% foreign-owned provided they receive the approval of the Minister of Commerce and Economy. Education entities need to ensure they get the relevant regulatory approvals

(which can be cumbersome in some countries) and pre-empt any operational issues. It should be noted it is not uncommon for the state authorities to provide assistance with land, financial-return guarantees and direct support to the right institution.

Education entities must also consider if there are any local or community quotas which could affect their business plan or may impact on their charter, aims, policies and procedures. They must also be aware of their negotiating position when leasing land and property as many landlords, particularly in this region, can adopt a 'take it or leave it' approach. Leases are also normally set on a five year rolling basis which may be significantly less than home jurisdictions for many major education providers and triggers for termination of agreements are often also set much lower.

islAmiC finAnCe oPTionsIslamic financing lends itself well to financing education projects, as school operators can point to the greater good which would result from the project to the local population and community. Unlike in other sectors, businesses like GEMS Education tend to be property-rich (so can provide good bankable collateral). With both a profit-making and charitable element to them, often more financing options are also available to education sector entities. There are a number of Sharia compliant instruments that lend themselves to financing companies like GEMS. For example, educational projects have tended to benefit from financial contribution through voluntary gifts (or Hiba in Islamic Finance terms). These are usually made by foundations or high net-worth individuals. Alternatively, donors may prefer to provide a benevolent, interest-free loan (or Qardr Al-hassan). This is often made by individuals for a particular project, e.g. parents of children studying at a school may provide money for maintenance or an exceptional expense. It is possible for education institutions to enter into a partnership arrangement (for example, utilising the Musharakah concept) for an investor to share in the profit and loss of the business running the school.

For greenfield operations which require buildings to be constructed, it may be more appropriate to adopt an Istisna’a (financing where by the funder procures the construction works). Also, it is possible to combine these forms of financing with a sukuk structure and offer the fundraising further afield as debt capital market instrument.

Amjad HussainPartner

K&L Gates