Entrepreneurship Case Questions .2

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Case 4.2 TOMS’ One-for-One Business Model: Is it Sustainable for the Future?

• Web: www.toms.com • Facebook: TOMS • Twitter: @TOMS

Bruce R. Barringer, Oklahoma State University

R. Duane Ireland, Texas A&M University

Introduction

In 2005, Blake Mycoskie, a serial entrepreneur, needed a break. After starting 5 companies in 12 years, he traveled to Argentina looking for some time to relax. He met some expatriates who were doing social work in villages on the outskirts of Buenos Aires and asked if he could tag along. In one village in particular, he noticed that most of the children didn’t have shoes. He stopped a few of the kids to look at their feet and saw cuts, abrasions, and infections. He knew the villagers were poor and couldn’t afford to buy their children shoes and wondered what he could do to help. He also knew there was an inexpensive shoe in Argentina called the alpargata. What would be the best way to provide poor Argentinean children alpargata shoes?

Mycoskie thought about starting a charity but felt the charity model wouldn’t work. He envisioned himself asking his family and friends for contributions, and knew they would contribute once, or twice, or maybe even several times. But it would be hard to continue to ask. What he needed was an approach that would sustain itself by selling a product that people needed to buy anyway. The approach Mycoskie came up with he later dubbed “one-for-one.” He would create a for-profit business to sell alpargata shoes, and for every pair sold he’d donate a pair to a child in need.

Mycoskie returned to the United States and set up shop in Santa Monica, California. He started TOMS with no shoe industry experience. The company was originally called Shoes for Tomorrow but was quickly shortened to TOMS. To get started, Mycoskie went from one retail store to another with his unique business idea. A few Los Angeles boutiques agreed to sell the shoes. His first break came when the Los Angeles Times ran an article about his business. To Mycoskie’s surprise, the article spurred $88,000 in orders in a single weekend.

Fast forward to today. TOMS is now an international brand. Its one-for-one model has been expanded to include shoes, eyewear, coffee, and bags. As of early 2017, TOMS had given away 60 million pairs of shoes in 75 countries, had helped restore sight for 400,000 people in 13 countries, and has helped provide over 335,000 weeks of safe water in 6 countries. The one-to-one model has been tweaked some, but the intention is the same. TOMS still gives away a pair of shoes for every pair it sells. Eyewear was added in 2011. Rather than donating a pair of glasses for every pair its sells, TOMS donates an equivalent amount of money that is used for sight-saving measures, such as eye surgery, medical treatment, or a new pair of prescription glasses. Coffee was added in 2014, under the “TOMS Roasting Company” brand. For every bag of coffee that’s sold, TOMS Roasting Company works with its Giving Partners to provide 140 liters of safe water (a one-week supply) to a person in need.

In 2015, the TOMS Bag Collection was founded. The Bag Collection includes different types of bags for women, including backpacks, tote bags, travel bags, cross-body bags, and clutches. The mission of the Bag Collection is to help provide training for skilled birth attendants and distribute birth kits containing items that help a woman deliver her baby safely. As of 2016, TOMS has supported safe birth services for over 25,000 mothers. Many of TOMS’ initiatives have ripple effects. For example, by supporting the creation of sustainable water systems, TOMS is able to provide entire communities with access to safe water, which leads to improved health, increased economic productivity, job creation, and access to education.

TOMS’ Business Model

TOMS is known for pioneering the one-to-one business model. As explained in this chapter, a firm’s business model is a plan or recipe for how it creates, captures, and delivers value to its stakeholders. TOMS’ business model is unique in that it combines the goals of a for-profit company with the ambitions of a philanthropic organization. TOMS’ business model template is shown nearby. The following is a brief overview of each of the major sections of the business model template.

Core Strategy

TOMS’ mission is “One-for-One.” The mission is made possible by the way TOMS is structured. TOMS has two parts. TOMS is a for-profit company that manages the overall operations and logistics. Friends of TOMS is a nonprofit organization that assembles volunteers, delivers the shoes, and coordinates the eyewear/sight restoration and coffee/clean water initiatives.

An important decision Mycoskie and his team made early on, when TOMS was strictly a shoe company, was that the cost of providing shoes to children in need would be built into the shoes’ selling price. The same approach now applies to eyewear and coffee. As a result, as long as TOMS sells its products, it can fulfill its philanthropic mission. It does not need to rely on donations, as most charities and nonprofits do, to sustain itself.

TOMS’ strategy is built on selling practical products. Shoes, eyewear, coffee, and bags are products that are sold widely. Its shoes are pricey ($55 to $89 for a pair of simple slip-ons), but people know that when they buy TOMS shoes they are paying for a pair that will be donated to a child in need. TOMS relies heavily on volunteers, interns, and partners to do much of its work. Many of the people who volunteer and work with TOMS are motivated by the company’s mission, which changes lives. In some countries, shoes are required in order to attend school. Owning a pair of shoes provides a child a chance to be educated and to have a better life. TOMS is not reluctant to share these types of realities, which deeply resonate with volunteers and customers. TOMS has almost as many interns, for example, working in its facilities as employees. Friends of TOMS works with nonprofits and NGOs to distribute its products. It does this in part because local organizations, already embedded in a country, know the needs better than TOMS does and can direct the company. An example is TOMS’ partnership with the Seva Foundation to implement its eyewear/restore sight program. The Seva Foundation runs sight programs in Tibet, Nepal, Bangladesh, and throughout sub-Saharan Africa. It is uniquely equipped to help TOMS make the best use of its dollars.

Resources

TOMS has been diligent in the execution of its one-to-one model. Its products are appealing, its philanthropic efforts are making a difference, and it involves a lot of people in what it does. These factors have enabled TOMS to build a strong brand. Its core strategy is also working. It has remained sustainable without needing donations. TOMS has also excelled at creating excitement and passion in others for what it is doing. It does a lot to elicit this. For example, every two weeks a group of TOMS’ volunteers travels to Argentina or another part of the world to make a “shoe drop,” which is the term that TOMS uses for distributing shoes. Anyone can apply for the trip, and for many it is a life-changing experience. Every shoe TOMS gives away is placed on a child’s foot by a TOMS volunteer. Volunteers pay their own travel expenses, but the trips are organized by TOMS.

TOMS also listens. It has both proponents and critics who are vocal in their feedback. Rather than ignoring the feedback, TOMS reacts, which encourages additional feedback. For example, one source of criticism that TOMS has faced is that when it gives a child a pair of shoes, it is a one-time event. The child will eventually grow out of the shoes and be right back to where he or she started. TOMS acknowledged this criticism as a valid point, and has responded by putting a program in place that tracks the children to whom shoes have been provided. It makes sure the children receive additional shoes when needed.

 

TOMS: Barringer/Ireland Business Model Template

© 2014 Bruce R. Barringer and R. Duane Ireland

Description

TOMS has a number of key assets. It has a healthy corporate culture, which draws people in. It has an entire apparatus to get people involved in its initiatives, including community groups, students, educators, and others. You can see TOMS’ work in this area by accessing the TOMS Community website (www.tomscommunity.com). TOMS also frequently touts the work of its volunteers on its Twitter account, which is available at @TOMS. TOMS supports a network of students at colleges and universities across the United States who have formed TOMS’ campus clubs. There are more than 280 such clubs in the United States and a dozen or so in Canada. Students who participate in TOMS’ campus clubs participate in TOMS’ awareness days, host TOMS-inspired events, spread the word about TOMS on their local campuses, and most importantly volunteer in their local communities.

TOMS also organizes events, which are heartfelt and draw attention to its products and causes. Two popular events are the One Day Without Shoes campaign and the World Sight Day. The One Day Without Shoes campaign was started in 2008 to raise public awareness of the importance of shoes. It asks ordinary people to go one day without shoes, just to see how it feels. The point is to instill in people what a difference a simple pair of shoes can make, particularly for children. The campaign grows every year. You can see highlights of the most recent year’s campaign at www.toms.com/one-day-without-shoes. World Sight Day is a day dedicated to raising global awareness about blindness and visual impairment. You can learn more about World Sight Day at www.toms.com/world-sight-day.

Financials

TOMS’ revenue comes from product sales. TOMS is a cost-driven business. It contains costs via its partnerships, volunteer network, and by avoiding traditional marketing. TOMS does very little traditional marketing, such as print media, radio, and television. Instead, it relies on word-of-mouth, social media, and prominent placements in retail stores by its retail partners. TOMS does not manufacture its products. Instead, it relies on contract manufacturers and growers (for its coffee) spread throughout the world. TOMS’ approach to manufacturing has raised eyebrows because it produces products in China, where labor practices are suspect. TOMS aggressively polices its manufacturers and other suppliers. It maintains strict standards that everyone in its supply chain is obligated to adhere to, particularly when it comes to fairness to workers. TOMS’ employees regularly visit its manufacturers to monitor compliance.

TOMS funds its operations from profits. It also benefits from the work of its volunteers.

Operations

To produce its products, TOMS manages a global supply chain. Its shoes are made in low-wage countries such as China, Argentina, and Ethiopia. Its eyewear is made in Italy. Its coffee beans are sourced from growers across the world and are roasted in the United States. Some of its most popular selections come from growers in Rwanda, Malawi, and Guatemala. In regard to distribution, TOMS delivers its products to its retail and online partners, who in turn sell to their customers.

TOMS does not dropship or sell on a consignment basis.

Manufacturing and selling is only the first step in TOMS’ overall process. Its philanthropic efforts come next. To distribute its shoes, TOMS partners with nonprofits and NGOs in the countries in which it distributes products. These organizations are called “Giving Partners.” The Giving Partners identify the children in need. The process of actually distributing the shoes is referred to as Shoe Drops. Friends of TOMS helps coordinate the Shoe Drops. TOMS’ eyewear/restore sight and its coffee/clean water initiatives are executed in a similar manner. TOMS works with Friends of TOMS and local organizations to make the distributions.

In regard to channels, TOMS sells its products through both retail and online outlets. Over 500 retailers around the world now carry TOMS shoes. Its distribution network for eyewear and coffee is growing. A string of TOMS’ café-stores are being rolled out. The café-stores sell TOMS coffee in a coffee house setting along with TOMS shoes, eyewear, and other products. As of early 2017, the company had eight stores. TOMS’ business model would not be possible without key partners. Its most important partners are Friends of TOMS (its nonprofit subsidiary), the nonprofits and NGOs that distribute its products, and its volunteers. TOMS also has a robust affiliate program.

Criticisms of TOMS

For some, it may be hard to imagine that TOMS has critics, but it does. Its critics point out flaws in TOMS’ approach, which some go as far as to say threaten the firm’s future.

The criticism focuses on three main issues. First, critics argue that TOMS, along with similar organizations, makes people in poor countries dependent on the goodwill of others rather than creating opportunities for them to take care of themselves. Many social entrepreneurs believe that the best way to create sustainable change in an impoverished country is through education, job creation, and trade, rather than aid, which is what TOMS does. In fact, a mantra among some social entrepreneurs is “trade not aid.” Microfinance, which provides loans to people in developing countries to start their own businesses, is based on these principles. The second criticism is that TOMS has manufacturing facilities in China and elsewhere where human rights violations have been documented. The third criticism is that by pouring a large number of free shoes into countries such as Argentina and Ethiopia, TOMS is inadvertently stymieing local entrepreneurship. The idea is that by providing shoes for free, TOMS takes potential business away from local companies, which provide not only shoes but jobs. In response to this criticism, TOMS says that about 40 percent of all shoes given away are made in the countries where they are distributed.

TOMS is aware of these criticisms, and in each case has responded in a proactive manner.

Is TOMS’ Business Model Sustainable?

The question is, “Is TOMS’ business model sustainable for the future?” The primary threats to its business model stem from the criticisms it receives, its reliance on people continuing to pay a premium for its products, and whether the one-for-one movement will continue to resonate with volunteers and nonprofit partners. Another threat is the nature of the products that TOMS sells. On the one hand, selling a physical product mitigates TOMS’ risk because it does not have to rely on donations to fulfill its mission. On the other hand, TOMS has the dual challenge of managing a global supply chain while at the same time leading a worldwide philanthropic effort. The complexity of this challenge will grow as TOMS continues to scale its business. No company has attempted to scale a one-to-one business model to the extent that TOMS is contemplating.

Bain Capital apparently feels TOMS’ business model is sustainable. In 2014, the private equity firm bought half of TOMS. Mycoskie owns the other half. At the time, TOMS was reportedly valued at around $625 million.

Stylish TOMS shoe for sale in a store owned by one of TOMS’ retail partners.

Patrick McMullan/Getty Images

Discussion Questions

1. 4-38.Given TOMS’ mission and the way its business model is constructed, would you characterize TOMS’ business model as a standard business model or a disruptive business model? What impact has TOMS’ business model had on socially-minded organizations?

2. 4-39.What revenue streams does TOMS have that support how the firm competes? How sustainable are these revenue streams?

3. 4-40.What key assets does TOMS possess and how sustainable are those assets?

4. 4-41.What are the major challenges TOMS faces as the firm continues implementing its business model as a means of reaching its mission? Which of these challenges is the most serious and why?

Financial Calculations And Loan Amortization

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Why is it important to understand the concepts of inflation, present value, and future value as Saudi Arabia moves towards Saudi Vision 2030? What are some of the important terms and concepts that managers must understand in making decisions in today’s global environment? How will these factors affect Saudi Vision 2030, if at all?

Search the Internet for an academic or industry-related article. Select an article that relates to any of these concepts (inflation, present value, or future value) in the context of doing business in Saudi Arabia.

For your discussion post, your first step is to summarize the article in two paragraphs, describing what you think are the most important points made by the authors (remember to use citations where appropriate). For the second step, include the reference listing with a hyperlink to the article. Do not copy the article into your post and limit your summary to two paragraphs. Let your instructor know if you have any questions and enjoy your search. Be sure to support your statements with logic and argument, citing any sources referenced.

measure Winter 2013The Middle East Quarterly Bulletin

Kingdom of Saudi Arabia – New Mortgage, Real Estate and Financing Laws

Locally Domiciled Funds in the GCC

Case Study: Jabal Omar, Makkah Al- Mukarramah, the Kingdom of Saudi Arabia

New Rules to Impact Banking and Investment Funds

www.kslaw.com/measure

 

 

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Foreword

This issue of measure focuses on new legal developments within the GCC region.

We have dedicated a significant portion of this issue to a special article on the new mortgage, real estate and financing laws of the Kingdom of Saudi Arabia. These new laws are highly welcomed pieces of legislation that have been anticipated for more than a decade. I personally am looking forward to seeing the practical effect of these laws. As a firm, we anticipate a significant impact on the operations of both financiers and borrowers. These new financing laws will hopefully lay the groundwork for the further development of secured and structured financing deals within the Kingdom of Saudi Arabia.

I am pleased to note the growth of the GCC domestic funds industry, and one of our articles affords a snapshot of various local structures. We are particularly focused on this as we have one of the pre-eminent funds practices in the region and we are assisting our clients to develop new and innovative structures on an almost daily basis.

We have developed specialist knowledge of district cooling over the past few years, and we have included a case study on one of our most recent and interesting projects in the region.

We also go back to our US roots by including a brief article on FATCA, the new US certification, diligence and reporting rules that will affect virtually all non-US banks, investment funds, investment managers and insurers. This is recommended reading for anyone operating within the financial services industry.

 

Jawad I. Ali Managing Partner – Middle East Offices and Deputy Practice Group Leader – Middle East &

Islamic Finance Practice Group

Volume 3: Issue 5 Copyright 2013, King & Spalding LLP. All rights reserved. The information provided in this bulletin is intended to inform but is not a substitute for specific legal or other professional advice where warranted by each situation’s facts and circumstances. Under some Rules of Professional Conduct, this communication may constitute attorney advertising.

measure CO-EDITOR Phillip Sacks psacks@kslaw.com

CO-EDITOR Sara Carmody scarmody@kslaw.com

SUBSCRIPTIONS Rachel Twomey rtwomey@kslaw.com

DESIGN Laura Owens lowens@kslaw.com

Tashi English tenglish@kslaw.com

James Hicks jhicks@kslaw.com

COVER PHOTOGRAPHY Courtesy of Thinkstock Photos; Riyadh, the newly renovated Qasr Al-Hokm

 

 

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This Issue

03 Saudi Arabia Kingdom of Saudi Arabia – New Mortgage, Real Estate and Financing Laws Mohammad Al-Ammar, Lidia Kamleh and Nabil Issa summarize the new mortgage legislation in Saudi Arabia.

12 Investment Funds Locally Domiciled Funds in the GCC James Stull and Phillip Sacks discuss various options for domiciling investment funds within the GCC.

16 Energy Case Study: Jabal Omar, Makkah Al- Mukarramah, the Kingdom of Saudi Arabia Tim Burbury and Khaled Dahlawi provide a case study on a new district cooling project in Saudi Arabia.

19 Banking and Finance New Rules to Impact Banking and Investment Funds John Taylor discusses the new FATCA rules and how they will impact non-US institutions.

21 endnotes Upcoming Events and Our Practice

In the Chambers Global 2012 guide, King & Spalding lawyers received 68 listings, including eight of the firm’s lawyers located in the Middle East. Twenty-eight of the firm’s practices were recognized as leading practices globally.

 

 

On 13/08/1433H (corresponding to 2 July 2012), the Kingdom of Saudi Arabia (the Kingdom) enacted the ‘real estate mortgage law’. This law, which has been debated for over a decade, was held up due to the global real estate market crises, the concerns about providing mortgages within the Kingdom in a Shari’ah- compliant manner and balancing the rights of both the borrower and the financier.

According to Bloomberg, less than 4 per cent of all home purchases in the Kingdom are financed through mortgages (compared with 17 per cent in the United Arab Emirates and 70 per cent in the United Kingdom). Currently the majority of mortgages are provided by the Kingdom’s Real Estate Development Fund (the RED Fund), which provides interest- free loans to low-income owners.

The new laws are set to improve the Kingdom’s overall real estate and financing market by introducing a system for

the provision of mortgages and other financing arrangements by financial companies. We envisage that these laws will in particular have a significant impact on ensuring that the interests of both financiers and borrowers are protected and/or the further development of secured and/ or structured financings in the secondary market.

What is the real estate mortgage law? The real estate mortgage law is actually a package of five separate laws, collectively referred to as the Real Estate and Financing Laws:

1. The Real Estate Registered Mortgage Regulations No. 49, dated 13/08/1433H (the Mortgage Law).

2. The Financing Lease Regulations No. 48, dated 13/08/1433H (the Finance Lease Law).

3. The Law on Supervision of Finance Companies No. 51, dated 13/08/1433H (the Finance Companies Law).

4. The Real Estate Finance Regulations No. 50, dated 13/08/1433H (the Real Estate Finance Law).

5. The Execution Regulations No. 53, dated 13/08/1433H (the Execution Law).1 See Table 1: Summary (on page 06)of the Kingdom’s new package of real estate and financing laws.

Why are the introductions of these laws significant? The Real Estate and Financing Laws will overhaul the real estate and financing market and, although this may take some time, provide clarity on the process to be followed in order for financiers to obtain recourse to the assets. Specifically, the laws are trying to ensure that both parties to a financing transaction are of ‘clean hands’. Financiers need to be qualified, honest and operate in an equitable manner, and borrowers need to have a credit rating and adhere to the agreed commercial terms.

Kingdom of Saudi Arabia – New Mortgage, Real Estate and Financing Laws New legislative reforms for mortgages, the real estate finance industry in general and a new future for financing

Saudi Arabia

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1 Fattah Z. “Saudi Mortgage Law Opens Kingdom to Home Lending Surge”, Businessweek, 4 July 2012.

 

 

One key provision of the Real Estate and Financing Laws states that financing arrangements (be it real estate related or otherwise) need to be undertaken in a Shari’ah-compliant manner. Since all laws in Saudi Arabia must comply with the Shari’ah, this requirement is not unusual in the context of Saudi Arabia. While there is much dicta on what this could mean for the industry and what the implications in practice would be, the requirement of Shari’ah compliance should not be a deterrent for industry participants. In fact, the inclusion of such a requirement solidifies equitable transactions, requires upfront disclosure by parties and protects both parties’ interests – building upon the very premise of Shari’ah principles. All five laws take into consideration the fairness of transactions.

The laws appear to deal with the concerns that have plagued the introduction of the Real Estate and Financing Laws for over a decade – that the mistakes that occurred in other jurisdictions that resulted in the global financial crisis do not occur in the Kingdom (noting that the Kingdom was fairly sheltered from the effects of the global financial crisis). Specifically, finance activities must not prejudice the safety of the financial system and fairness of transactions. To address this, the Finance Companies Law requires Finance Companies (defined herein) to diversify their risk, with limitations being imposed on the amounts a financier can lend to a borrower or its related entities. Details are expected to be forthcoming in the Implementing Regulations (defined herein).

The Saudi Arabian Monetary Agency (SAMA) and other Saudi Arabian authorities (including

the Ministry of Finance and the Ministry of Justice) are entrusted with implementing, supervising and monitoring the Real Estate and Financing Laws.

Real estate financing is already available in the Kingdom; however, the Real Estate and Financing Laws are noteworthy because they will regulate and facilitate the creation of financial products secured against property and perfection of mortgages over assets (including real property). Further, the Real Estate and Financing Laws open the market for investors who wish to establish finance companies.

When do they come into force? With the exception of the Execution Law, each of the laws became effective 90 days after publication in the Official Gazette. The Execution Law became effective 180 days after publication in the Official Gazette.

Except for the Mortgage Law, the laws provide that implementing regulations (in respect of the laws: the Implementing Regulations) should be issued within 90 days of the laws becoming effective, and in the case of the Execution Law, within 180 days. On 19 November 2012, SAMA released draft Implementing Regulations for review and comment.

Points for consideration 1. The laws do not deal only with real estate mortgages, they will also cover other types of financing arrangements and assets (including movable assets and intellectual property: see sections titled “Finance Lease Law” and “Finance Companies Law” for further discussion).

2. While the Real Estate and Financing Laws appear to be opening the door to the

possibility of a secured and/or structured financing industry, the laws specifically mention that foreign ownership restrictions apply and that securitization will be undertaken in accordance with the Capital Market Authority regulations.

3. While exemptions will apply for registration of mortgages in the context of a secured and/or structured financing (as detailed below), zakat (a form of Kingdom corporation tax) will still be payable.

4. It is unclear to what extent the rules and restrictions of the Finance Companies Law will apply to existing commercial banks in the Kingdom.

5. We understand that some banks would rather retain title to the real estate asset (which is currently common practice in the Kingdom) rather than take a mortgage over such property or asset. However, it is not clear if banks will be able to continue with their current practices, as there is a risk that a borrower may have the right to invalidate the bank’s ownership of the asset, based on the Mortgage Law.

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Specifically, Article 19 of the Mortgage Law provides that the agreement to own any mortgaged property by the mortgagor shall not be valid, and in that event the mortgage will be valid but the ownership right will be void.

Mortgage Law What is this law about?

The Mortgage Law generally regulates the creation and recording of mortgages; the rights and obligations of the mortgagor, mortgagee and other related third parties; and the termination of mortgages.

Previous practice Since the early 1980s, the public notaries, who are responsible for registering rights over properties in the Kingdom, have generally refused to record mortgages on real property in the name or on behalf of banks or other commercial lenders on the grounds that such banks and lenders charge interest in violation of Shari’ah principles and that notaries should not be involved at any level with such a violation.

Commercial lenders (including banks) therefore have typically either (i) recorded the mortgage in the name of a trusted lender employee or director; or (ii) more commonly, requested transfer of the title of the real estate in favor of the lender, with the agreement that the title would be reconveyed to the borrower upon payment of all amounts outstanding with respect to the related debt.

Due to developments in the real estate market in the Kingdom in the past ten years, it became necessary to regulate the mortgage of properties in a proper manner. It is therefore anticipated that the Mortgage Law will regulate mortgages and increase the comfort level for investors who wish to invest in this vital sector.

New procedures under the Mortgage Law Essentially, the Mortgage Law requires that in order for a mortgage to be enforceable against third parties, the mortgage will need to be either registered in the Real Estate Register, which has not been fully implemented yet, or recorded in the records of a competent notary public. Such registration will give the mortgagee priority over all other creditors with respect to the mortgaged property and will be limited to the loan amount agreed in the mortgage agreement. If a registered property is mortgaged in favor of several mortgagees, the mortgagees will be ranked according to the registration number and date of the respective mortgage agreements.

The Mortgage Law invalidates any provision that allows the mortgagee to acquire the mortgaged property in the event of default. Mortgagees

are therefore required to follow the execution procedures under the Execution Law to enforce mortgages against properties. It is not clear if financiers will be able to continue securing their rights by transferring ownership title to a property in the name of a trusted person (or a subsidiary). However, such practice may be considered a circumvention of the Mortgage Law.

A mortgagor may be the debtor himself or a real guarantor, whereby the latter may provide the property to be mortgaged even without the debtor’s permission. Interestingly, the Mortgage Law provides that a mortgage can be taken over real property that exists or that will possibly exist. This may make it possible to record mortgages over off- plan properties. In the case of a property that does not exist, the Mortgage Law requires that the property be properly described in the mortgage agreement and that it can independently be subject to auction sale. The Mortgage Law further provides that utilization (i.e. usufruct) rights may also be mortgaged (such as the musataha). Unless agreed otherwise, the mortgage of a real property will include attachments to the property, including utilities and improvements, subject to the rights of third parties.

Debt, either payable or promised, serves as consideration of the mortgage, and the amount should be specified in the mortgage agreement. Unless otherwise agreed, every part of the mortgaged property shall be security for the whole debt, and every part of the debt shall be secured by the property.

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“If a registered property is mortgaged in favor of several mortgagees, the mortgagees will be ranked according to the registration number…”

 

 

Table 1: Summary of the Kingdom’s new package of real estate and financing laws

What are the new laws? The Mortgage Law is actually a package of five separate laws. The package comprises the following:

The Mortgage Law

This law introduces a new framework for financiers to mortgage real estate (without taking title), including the ability to take second-ranking mortgages. This law is divided into four main sections dealing with various items, including: 1. the creation and registration of a mortgage; 2. the rights and obligations of a mortgagor and mortgagee; 3. the effect of registration of a mortgage; and 4. the circumstances in which a mortgage is terminated.

The Real Estate Finance Law

This law generally addresses: 1. the authority of SAMA in regulating the real estate mortgage market (including banks, finance companies, real estate refinancing companies and cooperative insurance companies); 2. additional liquidity support to be provided by the government through the RED Fund; and 3. the refinancing of transactions and the facilitation of structured financing and securitizations.

The Finance Lease Law

This law deals with Finance Lease Contracts in general and extends beyond leases provided regarding real estate to leases of immovable or movable assets, utilities, services, or other rights such as intellectual property. The law is divided into four main sections dealing with: 1. what constitutes a finance lease contract and the requirements for a valid finance lease contract; 2. the responsibility of parties to a finance lease contract; 3. the establishment of a registry that will create a platform for information relating to finance lease contracts; and 4. violations of the laws and disputes arising with respect to a finance lease contract.

The key provisions of this law include the rules and processes regarding recovering an asset when a borrower defaults.

The Finance Companies Law

This law provides a framework for companies to provide financing including, but not limited to, real estate finance, general leasing finance, finance of credit cards and consumer finance in a Shari’ah-compliant manner. The law is divided into eight main sections dealing with: 1. the application of the law (i.e. that the law applies to licensed companies under this law); 2. the licensing of finance companies and the various requirements of such finance companies; 3. the activities of finance companies and restrictions imposed on the activities of finance companies; 4. the management of finance companies, specifically how a finance company’s board will operate; 5. the supervision of finance companies by SAMA; 6. penalties for breach of the law and how disputes are to be resolved; 7. provisions relating to financing provided by finance companies in general; and 8. a grace period for companies established prior to the enactment of the laws to comply with the relevant provisions.

The law provides for the establishment of a new committee formed specifically to hear disputes (excluding real estate ownership and securities disputes) arising under this law and the Finance Lease Law.

The Execution Law

This law complements the above four laws and, with the exception of judgments and decisions issued with respect to administrative and criminal claims, permits an enforcement judge to carry out and administer compulsory enforcement. This law will assist in the recovery of an asset for and on behalf of the financier upon a borrower’s default. The law sets out, among other things, the procedures, rules and regulations under which an enforcement judge can operate and the ambit of the judge’s powers.

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The Mortgage Law allows for the disposal of the mortgaged real property subject to the agreement of the parties.

The right of the mortgagee in the proceeds of the mortgaged property is not very clear under the Mortgage Law. The mortgagor of the property is entitled to the proceeds of the real property, unless agreed otherwise, including the proceeds derived from the mortgage. The Mortgage Law, however, allows the mortgagee to collect the proceeds but invalidates a provision that allows the mortgagee to use the proceeds.

The mortgagor is under obligation to maintain the mortgaged property, and the mortgagee will have the right to object to any action that may negatively affect the value of the property. If the value of the property is diminished, or any event occurs that may restrict the mortgagee from foreclosure of the property due to default or deceit of the possessor of the mortgaged property, the mortgagee may request the possessor of the property to provide additional securities or

be subject to default under the Finance Companies Law.

If a debtor fails to make repayments, the mortgagee may, pursuant to the Execution Law, proceed toward compulsory expropriation of the property upon notice to the debtor and any possessor.

II. Real Estate Finance Law What is this law about?

The Real Estate Finance Law sets out SAMA’s responsibilities in regulating and supervising real estate finance companies seeking to provide mortgages to customers and, in doing so, expands upon the current real estate financing laws in the Kingdom.

SAMA’s role The Real Estate Finance Law sets out that SAMA will be responsible for, among other things:

1. allowing banks to own real estate for the purposes of undertaking real estate finance. Specifically, the law states that SAMA can exempt a company from Article 10(5) of the Banking Control Law, which currently restricts banks from owning real estate other than their business premises;

2. licensing of companies to undertake real estate finance activities;

3. licensing of “one (or more) joint stock company (or companies) [dealing specifically with refinancing] to undertake real estate finance pursuant to the needs of the market in whose ownership the Public Investments Fund may contribute.” We understand that a state-run refinancing company (referred to as the “Real Estate Refinancing Corporation”) will be established as part of this provision. Part of the shares of this company will be offered

for public subscription in accordance with the provisions of the Capital Market Law;

4. licensing of cooperative insurance companies responsible for insuring real estate finance risk in accordance with the Cooperative Insurance Companies Control Law; and

5. issuing standards, rules, instructions and procedures relating to the real estate finance sector and the review of real estate finance forms issued by real estate financiers to ensure their conformity with required standards and procedures. This particular scope of work is interesting because the law specifically states that the review process is aimed at ensuring the due protection of consumers. SAMA will also review the form of real estate finance contracts and will prescribe the minimum information required in such contracts. Industry participants will need to wait to see how this review process will work in practice.

Accessibility to information Previously in the Kingdom, any information relating to a property and its respective financing arrangements was restricted. Only through a power of attorney from the owner of a property could information be accessed. One of the key provisions of the Real Estate Finance Law is accessibility of information relating to properties.

In particular, SAMA will be responsible for:

1. publishing data relating to the real estate finance market and sponsoring the development of real estate finance techniques, including techniques for facilitating flow of data between the primary market and the secondary market; and

“The Mortgage Law further provides that utilization (i.e. usufruct) rights may also be mortgaged (such as the musataha).”

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2. identifying the principles of disclosure of the standards of financing costs and the method of their calculation to enable a consumer to compare rates.

The law obliges authorities responsible for registration of the real estate (i.e. courts and notaries public) to give real estate financiers access to information listed in the real estate registries. Details of the process will be set out in the forthcoming Implementing Regulations and will be in accord with the rules set forth by the Ministry of Justice.

Another key area of the law is that it requires the Ministry of Commerce and Industry, the Ministry of Justice, and the General Housing Ministry to each publish data relating to the real estate market periodically.

Balancing rights Interestingly, the Real Estate Finance Law states that licensed real estate finance companies shall carry on the business of real estate finance “without prejudice to the rules of Sharia as determined by the Sharia Committee referred to in Article (Three) of

the Finance Companies Control Law and without prejudice to the safety of the financial system and the fairness of transactions.” As mentioned above, such clauses are aimed at full disclosure by financiers about the details of the financing, their obligations and their payment requirements.

In return, the law guards financiers by ensuring that borrowers have some sort of credit record/rating before financing can be extended to them. As of this writing, SIMAH (the Saudi Credit Bureau) is the responsible entity for collating credit information. The Implementing Regulations to the Real Estate Finance Law and various directives to be issued by SAMA will provide further details regarding the minimum requirements that borrowers should meet (e.g. minimum credit history period) and the obligations of lenders in updating the credit information of the borrowers.

Secondary market – securitizations and refinancing The law provides real estate finance companies with the ability to refinance through (i) another real estate financing company or (ii) the issuance of securities (including, but not limited to, securitizations) in accordance with the Capital Market Law. This is indeed a positive step in that the law is not only dealing with the primary market but also with the secondary market, which could develop into a very large and lucrative industry within the Kingdom.

Furthermore, the law addresses one of the key concerns faced by parties when structuring secured and/or structured financing transactions in that it explicitly states that the transfer of mortgages in the secondary

market shall be exempted from registration fees in the real property registration system. In addition, the law provides the Council of Ministers with the ability to grant tax incentives for securities issued with respect to real estate financing.

III. Finance Lease Law What is this law about?

The Finance Lease Law sets out the framework for finance lease contracts (defined below) entered into between financial institutions (in their capacities as lessors) and borrowers (in their capacities as lessees) and the responsibilities of parties under finance lease contracts.

What is a Finance Lease Contract? A finance lease contract is defined widely as a contract in which a financier finances by way of a lease any leased assets (which is defined as immovable or movable assets, benefits, usufruct, services, and intangible rights (such as intellectual property)) to a third party (which we understand refers to the borrower).

A financier can lease the leased asset as (i) owner, (ii) owner of the benefit of such leased asset, (iii) a leased asset capable of being owned, or (iv) a leased asset capable of construction.

Details regarding the formalities of a finance lease contract will be set out in the Implementing Regulations to the Finance Lease Law; however, from a Shari’ah perspective, generally assets that do not exist are subject to a forward lease arrangement. Interestingly, out of the five Real Estate and Financing Laws, the Finance Lease Law has no specific

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reference to Shari’ah principles, although we anticipate that the implementation of the various provisions will require parties to adhere to Shari’ah principles.

Formalities of a Finance Lease Contract The law codifies the typical provisions found in standard finance lease contracts (such as a detailed description of the asset, the parties and other key information).

The law also permits the use of electronic finance lease contracts in addition to the typical written form of finance lease contracts. As with many developed real estate financing laws, the Finance Lease Law requires registration in accordance with the provisions of the law. Details of the process for registration will be forthcoming in the Implementing Regulations to the Finance Lease Law.

Who is responsible for what? The law sets out the responsibilities of the financier (in its capacity as a lessor) and the borrower (in its capacity as a lessee) with respect to the leased asset. These are typical provisions that are commonly seen in standard Ijara contracts, including that the risk of the asset is that of the financier as “owner” of the leased asset (who would be responsible for major maintenance of the leased asset), while the borrower would be responsible for the day-to-day use of such leased asset.

Transfer of an asset The law expressly states that the leased asset can then be transferred to a borrower in accordance with the terms and conditions of the finance lease contract. This includes transfers

that are conditional upon (i) the payment of installments, (ii) a specified amount being paid, or (iii) a promise to sell the asset at a nominal price, a price agreed in the finance lease contract or the value of the asset on the day the finance lease contract was entered into.

Financier’s protection Financiers can take comfort in the following provisions:

Financier’s protection against creditors: The law provides for the establishment of one or more joint stock companies, to be licensed by SAMA to organize registration of finance lease contracts onto a registry (the Contracts Registry). The shareholders of these companies will be limited to licensed finance companies, and the Implementing Regulations will detail the procedures of how this registry will operate, which documents are required, and what specific data will be collated and included. One of the key provisions for a financier is that title to the leased asset and any amendment to the finance lease contracts shall be enforceable against third parties only after registration of the finance lease contract onto the Contracts Registry.

Defaults: In summary, the law sets out the remedies and steps that may be taken when a borrower defaults on repayments. Specific remedies available include the ability to accelerate payments (e.g. rent) and, subject to various circumstances, direct recourse to the leased asset. Interestingly, Article 21 states that the recourse to the leased asset is carried out in a manner compliant with the Implementing Regulations and “in a way that achieves justice for both parties

to the finance lease contract.” It is unclear what this means and how “justice” is to be interpreted.

In a scenario where a lessee has defaulted, the financier is provided with two options whereby it may recover the leased asset. In the case of an immovable leased asset where such asset is not delivered to the financier, the financier may apply to the competent court for issuance of a judgment delivering the asset to the lessor, provided that such application is resolved within 30 days from the filing thereof. In the case of a movable leased asset, the law provides the financier with the right to recover such asset from the lessee in accordance with the terms and provisions of the law, the Implementing Regulations and the finance lease contract itself. The recovery process, however, would be supervised by the relevant authorities licensed by the Ministry of Justice.

It should be noted that financiers are required by the Finance Lease Law to sell the leased asset to a third party and recover any outstanding amounts through such sale.

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“The law also permits the use of electronic finance lease contracts in addition to the typical written form of finance lease contracts.”

 

 

IV. Finance Companies Law What is this law about?

The Finance Companies Law sets out the framework for the licensing, regulation and supervision of finance companies within the Kingdom by SAMA.

While released with the Mortgage Law, the Finance Companies Law is not limited to real estate financing and covers the financing and refinancing of other assets. Companies established prior to the enactment of the Finance Companies Law will be provided with a two-year grace period to comply with the provisions of the law and the Implementing Regulations.

Types of finance companies Finance companies are defined as joint stock companies holding a license to carry on finance activities in accordance with the Finance Companies Law.

The activities of a finance company include (i) asset finance,

(ii) finance leases, (ii) finance of credit cards, (iv) consumer financing and (v) any other financing activity approved by SAMA. Finance companies already exist in the Kingdom and are regulated by the Ministry of Commerce and Industry. The Finance Companies Law appears to be shifting the responsibility for such companies to SAMA.

The law restricts finance companies from undertaking various activities such as trading in real estate, accepting deposits, granting facilities or undertaking financing arrangements secured against the finance company’s shares. It also restricts finance companies from obtaining short- term financing without the approval of SAMA.

Financier’s obligations – licensing, supervision and management of Finance Companies The Finance Companies Law sets out the steps companies must follow to apply for a license to operate, along with the requirements. Most of the processes and details will be set out in the Implementing Regulations; however, the law specifically requires finance companies to undertake their business in compliance with Shari’ah principles and requires that board members of such finance companies meet Shari’ah and legal eligibility criteria. Board members, executives and employees holding positions of “control” are also required to have both degrees and experience in the finance industry and no convictions under certain laws (including the Banking Control Law).

It appears that a finance company is expected to publicly list a certain percentage of

its shareholders within two financial years of operation. The Implementing Regulations to the finance companies Law will also set out other requirements for Finance Companies (such as risk management, internal audit, corporate governance, etc.).

Licensing of finance companies appears to be a collaborative effort between SAMA and the Ministry of Commerce and Industry, with SAMA responsible for vetting individuals and approving licenses and the Ministry of Commerce and Industry responsible for the formation and registration of finance companies. Licenses issued by SAMA will be valid for five years.

The Department of Zakat and Income Tax will be responsible for calculating the relevant zakat payments required from such finance companies.

Securitizations and secured financings The Finance Companies Law provides that a finance company may, in accordance with the provisions of the Implementing Regulations to the Finance Companies Law and other considerations (such as its asset size and financial position), issue securities and bonds in accordance with the Capital Market Authority laws and regulations.

Enforcement SAMA is also able to suspend licenses and file claims before the courts, request liquidation of a company, and impose fines and penalties as necessary.

The Finance Disputes and Violations Committee The royal decree pursuant to which the Finance Companies

“The Department of Zakat and Income Tax will be responsible for calculating the relevant zakat payments required to be paid by such Finance Companies.”

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Mohammad Al-Ammar is a counsel in King & Spalding’s Riyadh office. Mohammed

is a transactional lawyer who specializes in corporate and finance matters in Saudi Arabia. He can be contacted at mal-ammar@kslaw.com or +971 4 377 9900.

Lidia Kamleh is a senior associate in King & Spalding’s Dubai office. Lidia specializes in debt capital

markets with a particular focus on sukuk. She can be contacted at lkamleh@kslaw.com or +971 4 377 9906.

Nabil Issa is a partner in King & Spalding’s Dubai and Riyadh offices. Nabil is recognized as one

of the market leaders in corporate transactions and investment funds in Saudi Arabia. He can be contacted at nissa@kslaw.com or +971 4 377 9909.

Law was issued provides that a new judicial committee (and appeal committee) will be formed under the name of “The Finance Disputes and Violations Committee” (the Committee). The Committee will have jurisdiction over all matters pertaining to the application of the Finance Companies Law and the Finance Lease Law and any grievance against related resolutions issued by SAMA. However, the Committee will not have jurisdiction over disputes between financiers and borrowers when the subject matter of the disputes is a right in rem with respect to real property. Further, the Committee will have no jurisdiction over securities disputes arising out of the financing activities. Finance disputes will be subject to statutes of limitation of five years. The Committee (and the appeal committee) is formed on a temporary basis, and the royal decree provides that the duties of the Committee shall be transferred to a competent court in due course.

V. Execution Law What is this law about? The Execution Law is a complementary law to the above four laws that, with the exception of judgments and decisions issued with respect to administrative and criminal claims, permits an enforcement judge to carry out and administer compulsory enforcement. This law will assist in the recovery of an asset for and on behalf of the financier upon a borrower’s default. The Execution Law sets out, among other things, the procedures, rules and regulations under which an enforcement judge can operate and the ambit of powers.

As with the Finance

Companies Law and the Finance Lease Laws, the Execution Law is restricted not only to the enforcement issues pertaining to real estate but is a law dealing with enforcement in general.

Conclusion What does the future hold?

The introduction of the Real Estate and Financing Laws does not necessarily mean that there will be a multitude of tenants becoming homeowners or that foreign investors will automatically invest more in the Kingdom overnight. Instead, the Real Estate and Financing Laws are a significant milestone for the Kingdom’s real estate sector that, in time, will open many new doors and bolster the economy, provide financiers with greater comfort when lending, and provide potential homeowners with the opportunity to own property in the Kingdom.

As set out above, in conjunction with various circulars and directives, the Implementing Regulations to each of these laws will contain most of the details on how the laws will operate. Furthermore, the laws are untested, and only time will provide understanding of their application and clarity as to the exact rights of financiers and borrowers.

Key areas of the laws to be tested include the enforceability of the financier’s security upon the borrower’s default (specifically the effectiveness of collateral), the courts’ interpretation of the law, and the procedures and regulations to be established separately by SAMA, the Ministry of Finance and the Ministry of Housing. |

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In response to this, local regulators have overhauled funds regulations for locally domiciled vehicles in an attempt to attract more investments and maintain oversight of the offering and operations of funds. These regulations have had mixed results.

On the one hand, the regulations bring stability, some tax advantages and potential exemptions to certain regulatory requirements. In particular, due to the legal structure of most locally domiciled funds, the regulators have generally allowed local funds with non-GCC ownership to invest in certain sectors or real property that would otherwise be subject to foreign ownership restrictions.

On the other hand, some provisions are overly burdensome and create impracticable restrictions for many potential funds. Certain regulators have expressed willingness to waive provisions on a case-by-case basis. However, since many of the local fund regulations are relatively new, sponsors and fund managers may have to take a wait-and- see approach in some jurisdictions to see how accommodating the regulators will be.

Below we examine the regimes governing locally domiciled investment funds in the following jurisdictions: the Kingdom of Saudi Arabia (Saudi Arabia), the State of Qatar (Qatar) and the United Arab Emirates (UAE).

Locally Domiciled Funds in the GCC

Investment Funds

Over the past couple of years, we have seen a noticeable increase in the number of investment funds targeting securities and assets in the GCC. However, with the exception of investment funds focusing on assets in the Kingdom of Saudi Arabia, a large majority of these investment funds continue to be domiciled in offshore jurisdictions – predominantly in the Cayman Islands.

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Saudi Arabia Saudi Arabia is now home to a large majority of investment funds being domiciled in the GCC due to its relatively clear and predictable funds regime. The recent turmoil in Bahrain has also added to the popularity of the Saudi Arabian investment funds industry. The offering and operations of all funds in Saudi Arabia are governed by the Capital Market Authority (CMA) pursuant to the Investment Funds Regulations and Real Estate Investment Funds Regulations (together known as the Saudi Fund Regulations). An investment fund may only be formed, managed and offered by a company licensed by the Saudi CMA as an “Authorized Person”. The fund itself is an unincorporated contractual vehicle formed between the fund manager and the investors pursuant to the “Terms and Conditions” of the fund. Accordingly, the fund must act and hold its investments through its fund manager, a CMA-licensed custodian or a special purpose vehicle (SPV) substantially owned by the fund manager or custodian.

Funds may be publicly offered or privately placed. All funds must be authorized by the Saudi CMA. There are no exemptions for funds being offered to sophisticated investors, financial institutions or high-net-worth individuals.

For a public fund, the offering documents must be prepared in Arabic and submitted to the Saudi CMA for formal approval. This process can take several months. There is no minimum investment amount for investors in a public fund, and there are no restrictions on the length of the offering period.

For private funds, only the Subscription Form and Terms and Conditions must be in Arabic. Other offering documents, such as a private placement memorandum, may be in English. Once the offering documents are submitted, if the Saudi CMA does not comment on the offering documents within 15 business days, the fund manager may begin offering the fund to up to 200 Saudi Arabian investors, who must be identified to the Saudi CMA as part of the submission. The minimum investment amount per investor is SAR 1 million. The offering of units is permitted only during the 12-month period following the end of the 15-business-day comment period. If the fund manager wishes to offer shares after such period has expired, the offering documents must be resubmitted to the Saudi CMA. If a fund manager wants to form an open-ended fund, it would be wise to offer the fund publicly to avoid the annually recurring Saudi CMA approval process.

The Saudi Fund Regulations require that each fund have a board that will oversee the fund manager and approve investments by the fund. At least one-third of the board, and no fewer than two members, should be independent. The Saudi CMA has allowed privately placed funds to have fewer independent members on a case-by-case basis.

Units in a Saudi fund entitle their holders to a proportional share of the profits of the fund. While the Saudi CMA has not permitted separate classes of units in a fund, it has allowed for a disproportionate allocation of profits. Also, often the fund manager receives a “performance allocation” from the profits of the fund. The Saudi CMA has also allowed a fund manager to enter into “side letters” with investors in certain circumstances, granting preferential rights or reducing or eliminating fees charged to such investors.

All funds are subject to a number of restrictions and requirements as to valuations, subscriptions, redemptions, diversification, etc. These restrictions would be inapplicable to or impracticable for the investment strategy for many investment funds. Accordingly, the Saudi CMA has shown a willingness to waive certain provisions on a case-by- case basis.

Units in a Saudi Arabian investment fund may be offered to foreigners. Under the Real Estate Investment Funds Regulations, real estate funds may be offered only to Saudi Arabian companies and nationals, other GCC nationals and foreigners who reside in Saudi Arabia. However, the Saudi CMA has on a regular basis allowed non-GCC nationals and companies to subscribe for units. Currently, non-GCC investors in a Saudi fund are not required to register with the Saudi Arabian General Investment Authority.

Saudi funds are extremely tax-efficient vehicles. The Department of Zakat and Income Tax (DZIT) has not assessed any taxes on Saudi funds, their investments or unit holders in a Saudi fund. However, the DZIT has reserved the right to tax funds in the future and on a retroactive basis.

There is no requirement for a fund manager to invest any amount in a fund it manages, although the Saudi CMA has expressed its preference for the fund manager to make such investments. The Saudi Fund Regulations imply that an investor should contribute the full amount of its capital when it subscribes for units; however, the Saudi CMA has regularly approved funds with capital commitment structures.

In general, the Saudi CMA has shown flexibility as to fund structures that most other regulatory

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bodies in the region have been unable or unwilling to do. Additionally, we understand that the Saudi CMA is considering revamping its funds regime in the near future.

Qatar The formation and offering of investment funds in Qatar is regulated by the Qatar Central Bank (QCB) pursuant to Law No. 25 of 2002 (the Qatari Funds Law). All funds domiciled in Qatar must be licensed by the QCB. There are no exemptions to the licensing process.

A fund may be established only by a Qatari– licensed bank or a QCB-licensed company and is formed upon entry of its name in the Commercial Register at the Ministry of Economy and Commerce. Foreigners may acquire units in a Qatari fund, although the QCB retains discretion to limit the extent of their participation. The Qatari Funds Law does not regulate the number of investors or diversification of a fund’s investments. Qatari funds are subject to a 10 percent tax rate on profits sourced in Qatar.

Unfortunately, the Qatari Funds Law is not comprehensive and, despite its 11-year history, is relatively unutilized. In our experience, most funds investing into Qatar still use offshore investment vehicles or SPVs. Qatar is one of the only GCC jurisdictions that has not recently overhauled its fund regulations or announced its intention to do so.

However, the Qatar Financial Centre (QFC) recently introduced the Collective Investment Schemes Rules 2010 and the Private Placement Schemes Rules 2010 in an attempt to enhance the QFC’s reputation as a prime jurisdiction in which to establish investment funds. Funds formed in the QFC are regulated by the Qatar Financial Centre Regulatory Authority. The primary advantage of a QFC fund is that it is exempt from all Qatari taxes.

UAE Until 2012, investment funds in the UAE were regulated by the UAE Central Bank. However, new fund regulations were issued and implemented in 2012 by the UAE Securities & Commodities Authority (ESCA). These new regulations (the ESCA Regulations) are expected to be the first in a series of related regulations and were discussed in detail in our last issue of measure.

In summary, a UAE-domiciled fund can be established only with the approval of ESCA and the sponsor must be a UAE joint stock company or a UAE branch of a duly licensed foreign company.

The offering documents of a UAE-domiciled fund must be in Arabic. Any amendments to the offering documents must be approved by ESCA, and certain amendments require the approval of the investors in the fund. There are no express exemptions to the ESCA licensing and approval process.

The ESCA Regulations are silent on the corporate form of a UAE fund. We understand that a local fund is an unincorporated vehicle in which investors do not have an equity interest but instead have a contractual right to share in the profits and losses of the underlying investments of the fund. Given that a local fund does not have a corporate personality, the legal title to investments could be held by the fund manager (or a special- purpose vehicle affiliated with the fund manager) rather than the fund itself, similar to the structure that must be implemented for a Saudi-domiciled fund. We understand that eventually the UAE Companies Law may be amended to give a UAE fund its own legal personality, but there are no plans for such amendment in the immediate future.

The ESCA Regulations include several unusual restrictions for local funds, such as the maximum amount a fund can invest in any single company. Such restrictions would be impracticable in the context of private equity and real estate funds. However, we understand that ESCA intends to take a pragmatic approach in this regard and has the discretion to waive such restrictions under the regulations.

“Unfortunately, the Qatari Funds Law is not comprehensive and, despite its 11-year history, is relatively unutilized. In our experience, most funds investing into Qatar still use offshore investment vehicles or SPVs.”

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James Stull recently relocated to King & Spalding’s Dubai office after spending three years in the firm’s New York office. James is an associate who regularly advises fund sponsors and managers on structuring and establishing investment funds that have a Middle Eastern focus. He can be contacted at jstull@kslaw.com or +971 4 377 9929.

Phillip Sacks is a senior associate in King & Spalding’s Dubai office. Phillip regularly advises fund sponsors and managers on the structuring and establishment of investment funds of all types, including private equity, venture capital, real estate, infrastructure, credit and hedge funds. He can be contacted at psacks@kslaw.com or +971 4 377 9916.

The ESCA Regulations do not contain a minimum investment amount for investors in a private or public fund. In practice, we understand ESCA will require a minimum initial investment of AED 250,000 for a private fund.

The fund manager of a UAE fund is required under the ESCA Regulations to invest at least 3 percent of the capital. The fund manager, together with its subsidiaries and affiliates, is restricted from investing more than 49 percent of the capital of the fund unless the fund is closed- ended and privately placed.

The ESCA Regulations provide that the offering period should be specified in the offering documents. Presumably, open-ended funds and mutual funds will not need to specify an offering period and can issue units for an indefinite period once the fund is approved by ESCA.

While the ESCA Regulations provide that units in a UAE fund confer upon their holders equal rights and entitle their holders to a proportional share of the profits of the fund, we understand that ESCA may allow certain investors to have different rights on a case-by-case basis. Additionally, the ESCA Regulations contemplate that all subscription amounts for units must be paid up front. We understand that it is not ESCA’s intent to prohibit a capital commitment structure and such will be permitted if clearly set forth in the fund’s offering documents.

Each UAE fund must have a board of directors. The board must include a representative of the fund manager and at least three members independent from the fund manager. All appointments and removals of directors are subject to the approval of ESCA.

The investment funds regime in the Dubai International Financial Centre (DIFC) is one of the most developed in the region. However, despite its relatively clear and comprehensive regulations, the DIFC has not taken off as a regional destination for fund establishment, and most managers and sponsors still choose to domicile their investment funds in offshore jurisdictions, particularly in the Cayman Islands. Having said this, the DIFC is very popular for setting up licensed asset management entities and is arguably now the hub for fund managers in the GCC. There are also some very useful corporate vehicles available in the DIFC, including the “Special Purpose Company”, which is commonly used as part of a fund structure, particularly when investing in Saudi Arabia and Kuwait.

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How We Can Help King & Spalding LLP is among the most active law firms in assisting clients establishing investment funds and structures. Over the past several years, King & Spalding has been ranked by Chambers Global and other publications as a top law firm for investment funds work in the Middle East. In 2012, lawyers in our Abu Dhabi and Dubai offices and our affiliated Riyadh office advised clients on forming and launching over two dozen funds targeting assets in the GCC and MENA regions. These funds ranged from private equity to real estate, infrastructure, distressed assets, credit and hedge funds and were structured on conventional and Shari’ah-compliant bases. We have extensive experience working with regulators in all of the major financial centers in the Middle East. |

 

 

Case Study: Jabal Omar, Makkah Al-Mukarramah, the Kingdom of Saudi Arabia

Energy

 

 

Background JODC is the largest developer in Saudi Arabia and is developing and constructing the Jabal Omar area located near the courtyard on the western side of the Grand Mosque; it also owns, develops, manages, invests, sells and rents real estate and plots of land in the area. The entire USD5.5bn mixed-use development will comprise up to 37 towers and many of the world’s leading hotel brands to provide accommodation for 45,000 pilgrims. It is one of the largest hotel projects of its kind in the world.

King & Spalding have been advising on the district energy project that will serve the entire Jabal Omar area and, when complete, will be one of the largest project-financed deals of its type in the Kingdom of Saudi Arabia. The district energy project involves JODC granting a concession to a third-party special purpose vehicle (SPV) to design, build, fund, operate and maintain a district cooling system with a plant capacity of up to 55,000TR for a 25-year period (Term).

King & Spalding advised JODC on the project structuring, tender documents, drafting and negotiating the build, operate and transfer (BOT) agreement, and a suite of project agreements including project financing agreements through to financial close. Financing was provided by Saudi Hollandi Bank.

Summary of the transaction The “concession” element of the transaction means that the SPV has the exclusive right to provide district cooling services to all “end users” within the Jabal Omar multipurpose development at Makkah, Al-Mukarramah, Kingdom of Saudi Arabia (Development), in return for payment of a tariff from each end user.

The project is made up of three key components:

(a) a district cooling (DC) plant that contains water and uses chilling technology to cool the water to 5 degrees Celsius, plus pumps to pump water out of the DC plant;

(b) a DC network that consists of two long pipelines—one to supply the chilled water throughout the Development area and one to bring the return water back to the DC plant; and

(c) energy transfer stations, which are rooms at the base of each building within the Development that have pipes and equipment to receive the chilled water and convert it into chilled air and to return the water back into the DC network.

The SPV will design, build, operate and maintain all these components. The SPV will also enter into various services agreements with “end users”, in this instance, the companies that will function in the Jabal Omar complex, for the supply of chilled water for long-term air-conditioning needs. The SPV will charge certain “tariffs” to JODC under these services agreements. This is the SPV’s revenue stream for the project, which will enable it to repay debt to the financiers, pay the concession fee to JODC, provide a return on equity for the shareholders of the SPV, and pay all costs and expenses to the EPC contractor and operator. The services agreements will operate for the duration of the Term and will require JODC and future third-party end users to pay a tariff to the SPV for the SPV performing certain “DC services” (mainly providing chilled water).

King & Spalding represented Jabal Omar Development Company (JODC) on its first PPP initiative in the Holy City of Makkah; a district energy project to service the USD5.5bn mixed-use Jabal Omar development.

“The SPV will also enter into various services agreements with ‘end users’, in this instance, the companies that will function in the Jabal Omar complex, for the supply of chilled water for long term air conditioning needs.”

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In order to secure project financing for the Development and ensure its “bankability”, the lenders required the SPV and JODC to enter into a range of financial and security documents, including a direct agreement that afforded them the right to step in and cure any defaults of the SPV.

A diagrammatical representation of the proposed contractual structure for the Development is presented below, together with a description of each project document. Conclusion The deal is significant because it is the first project-financed district energy transaction in the Middle East under a new “end-user BOT concession” model. Future deals in the GCC have and will continue to follow this model. This model differs from traditional independent water and power projects (IWPP) and independent power projects (IPP) models, where a Government or quasi-Government concession grantor acquires the complete power or water “offtake”, provided the facility is made available.

The model is currently being adopted by King & Spalding’s clients on four additional project-financed district energy schemes across the Middle East.

Khaled Dahlawi is an associate in the Global Transactions Group in the Abu Dhabi office of King & Spalding. He can be contacted at kdahlawi@kslaw.com or +971 2 596 7005.

JODC

EPC Contractor Operator

Financiers SPV End Users

Concession Agreement

Lease

Direct Agreement

O&M Contract

EPC Contract

Direct Agreement

Financing/ Security Documentation

Direct Agreement

Abu Dhabi-based projects partner Tim Burbury led King & Spalding’s cross-border team on the deal. Fellow Middle East-based partners Benjamin Newland, Nabil Issa and Leroy Levy were also involved, as were counsels Tim Tucker (New York) and Mohammad Al Amaar (Riyadh). Associates on the transaction were Hoda Naghdy (Abu Dhabi), Simon Rahimzada (Abu Dhabi), Sara Carmody (Dubai), Khaled Dahlawi (Abu Dhabi), Asal Saghari (London), Mahynoor El Tahry (New York) and Lachlan Doyle (Abu Dhabi). |

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Tim Burbury is a partner in the Global Transactions Group in the Abu Dhabi office of King & Spalding. He can be contacted at tburbury@kslaw.com or +971 2 596 7001.

 

 

New Rules to Impact Banking and Investment Funds FATCA is the acronym for new US certification, diligence and reporting rules that will affect virtually all non-US banks, investment funds, investment managers and insurers.

Banking and Finance

FATCA stands for the “Foreign Account Tax Compliance Act.” Many people mistakenly believe that the rules apply only to banks or to entities with US investors.

Ostensibly aimed at locating investments by US taxable individuals, FATCA imposes a comprehensive new regime on non-US banks, funds and insurers that virtually every entity must take into account. These new US rules even impact entities that do not deal with US investments and do not have US investors.

FATCA operates by imposing a new 30 percent withholding tax on certain US-related payments made to foreign financial entities. FATCA overrides income tax treaties and other general US domestic withholding exemptions. A

FATCA-compliant financial entity can avoid the new withholding tax only by following the new diligence and reporting rules. Thus, non-US financial institutions and funds with US assets or investments, including listed securities, will need to agree to comply with FATCA.

FATCA’s reach goes beyond financial entities with US assets by imposing further withholding and diligence obligations on FATCA-compliant entities. Due to complex rules slated to come into force over the next few years, even some strictly in-country payments from a FATCA- compliant financial entity to another non- US financial entity could be subject to withholding. This “pass through” payment regime is intended to force as many

financial entities as possible into the FATCA compliance regime.

Compliant financial entities will be seeking FATCA-type certifications from other foreign financial entities starting January 1, 2014. The FATCA rules require most affected parties to obtain a “global intermediary identification number” (GIIN) from the IRS. Large financial institutions with US exposure are likely to require FATCA certifications, and a GIIN, as a matter of course even when not strictly required. Thus, it is more and more likely that a “responsible officer” at an affected entity (including fund managers) will be required to obtain a GIIN and certify an entity’s FATCA status even if the entity never has transactions with a US nexus.

The recently finalized FATCA rules contain limited exemptions, but these exemptions are not always automatic and may require changing policies, procedures and/or transaction documentation in order to qualify. For instance, even funds that prohibit sales to US investors will need to amend

“FATCA overrides income tax treaties and other general US domestic withholding exemptions.”

19 | measure

 

 

their review procedures and underwriting agreements to accommodate the new rules.

Complying with FATCA can be manageable. A bank, investment fund, fund manager or other financial entity first needs to determine its general status under FATCA. The entity may be eligible for an exemption, but this needs to be determined sooner rather than later. As noted above, some available exemptions may apply only after certain policies and procedures are adopted.

If a exemption is not available, the entity needs to prepare to obtain its GIIN.

Registration begins in July of this year. Diligence on potential direct or indirect US taxable account holders (which would include US expatriates, green card holders and certain other individuals taxable in the United States) needs to be performed. As with many governmental regulations, it is not enough to “know” that you have no US investors. You must perform the necessary diligence in accordance with the FATCA rules. It is important to adequately document the

John Taylor is a US tax partner in King & Spalding’s London office. John’s practice focuses primarily on international transactions. He can be contacted at jtaylor@kslaw.com or +44 20 7551 7553.

diligence in case it is ever questioned.

New procedures for handling investments/accounts need to be in place before January 1, 2014. FATCA applies to investment accounts and can also apply to debt or equity securities issued by a financial entity.

The United States has entered into agreements with several countries regarding FATCA. These “intergovernmental agreements” or IGAs streamline some of the diligence and other requirements imposed by FATCA for operations of financial entities in the country with the IGA. Some Middle Eastern countries are in talks with the United States over IGAs. It is important to note that the IGAs may lessen some of the FATCA burdens, but they do not eliminate the basic diligence and reporting requirements.

FATCA is here to stay. The United States government will push ahead with this compliance initiative regardless of the burdens it imposes on foreign financial entities. At best the

“As with many governmental regulations, it is not enough to ‘know’ that you have no US investors.”

IGAs will make some of these burdens more manageable, but they will not eliminate them.

The next couple of months will be critical. It is not just a matter of performing diligence on existing investors/account holders. Underwriting, fund management, and debt and equity documentation all need to be considered in light of FATCA compliance issues. |

measure | 20

 

 

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measure | 21

Excel 2016 Skills Approach – Ch 8 Fix It 8.6

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A Skills Approach: Excel 2016 Chapter 8: Exploring Advanced Data Analysis

1 | Page Fix It 8.6 (Mac 2016) Last Updated 4/4/18

Fix It 8.6 (Mac 2016 Version) In this project, you will fix errors in financial data for a restaurant chain to find which locations are the lowest

performers and correct the Solver parameters to set target sales goals for next year using reasonable constraints.

You will create the missing scenario summary report.

Skills needed to complete this project: • Managing Conditional Formatting Rules

• Filtering and Sorting Using Cell Attributes

• Sorting Data on Multiple Criteria

• Using Advanced Filter

• Creating a Custom Filter

• Refreshing Data in a PivotTable

• Creating What‐If Analysis Scenarios

• Activating the Solver Add‐In

• Using Solver

• Creating Scenario Summary Reports

This image appears when a project instruction has changed to accommodate an update to Microsoft Office 365. If the instruction does not match your version of Office, try using the alternate instruction instead.

1. Open the start file EX2016-FixIt-8-6. The file will be renamed automatically to include your name.

Change the project file name if directed to do so by your instructor, and save it.

2. If the workbook opens in Protected View, click the Enable Editing button in the Message Bar at the top of the

workbook so you can modify the workbook.

3. There are multiple conditional formatting rules applied to cells in the Financial Data worksheet. Make

changes to the conditional formatting rules on this worksheet only.

a. There should be three conditional formatting rules: a Top 2 rule, a Bottom 2 rule, and an Icon Set

rule. Delete all the extra rules.

b. Correct the cell range for the remaining rules. All the rules should be applied to cells D5:G20.

c. Fix the remaining conditional formatting rules so if the value of the cell is in the top 2 values or the

bottom 2 values, the icon rule is not applied.

4. Now that the conditional formatting rules have been fixed, sort the data alphabetically by the value in the

Location column and then by icon in the Quarter 1 column so rows with the up arrow are at the top and

rows with the bottom arrow are at the bottom.

a. If necessary, be sure to click a cell in the data set to de-select the D5:G20 cell range or the sort will be

applied to only the selected cells and your data will be mixed up.

Step 1

Download start file

 

 

A Skills Approach: Excel 2016 Chapter 8: Exploring Advanced Data Analysis

2 | Page Fix It 8.6 (Mac 2016) Last Updated 4/4/18

 

b. You will need to use the Sort dialog as this requires a multi‐level sort.

c. If the sort if performed correctly, the data will be sorted by location, and then within each location, by

the icon in the Quarter 1 column.

5. An advanced filter should be performed to find any locations with a profit/loss for any quarter less than

or equal to 10,000. The results should be copied to cell I4.

a. The criteria range beginning in cell A23 is set up incorrectly. The criteria for this filter should include

values <10,000 in Quarter 1 or <10,000 in Quarter 2 or <10,000 in Quarter 3 or <10,000 in Quarter 4.

b. The previous attempt at using Advanced Filter used the wrong Criteria range.

c. The previous attempt at using Advanced Filter resulted in an incorrect Copy to range. Be sure to start

the new Copy to range in cell I4.

d. AutoFit column K.

6. Apply a custom number filter to the main data set to show only stores with a profit greater than $55,000 in

Quarter 4. You will need to select the data range A4:G20 before enabling Filter.

7. The data underlying the PivotTable have been updated since it was created. Update the PivotTable and

PivotChart.

The data underlying the PivotTable have been updated since it was created. Update the

PivotTable.

8. Conditional formatting rules have been applied to the data on the Financial Targets worksheet to highlight

the two lowest values for each quarter. However, the values for Quarter 4 are not highlighted. Use the

Conditional Formatting Rules Manager to fix the problem.

9. The Financial Targets worksheet has two scenarios for possible sales targets for next year. Show the 20%

Increase for All Locations scenario.

10. The Financial Targets worksheet has been set up with Solver parameters to find reasonable target sales goals

for the two worst locations for each quarter. Some locations had shown very uneven profit/loss results

from quarter‐to‐quarter. The Solver parameters include constraints to limit the new sales target for each

cell to less than or equal to the average quarterly sales for that location.

Fix the Solver parameters to find the maximum possible value for the overall average quarter income (cell G24) by

changing the values in cells C10, C15, D15, D19, E15, E19, F10, and F19 within the following constraints. It may

be easier to delete all of the existing constraints and start over.

a. For each quarter, the value of the two variable cells for that quarter must be equal to each another.

This requires a total of four constraints.

 

 

A Skills Approach: Excel 2016 Chapter 8: Exploring Advanced Data Analysis

3 | Page Fix It 8.6 (Mac 2016) Last Updated 4/4/18

b. None of the changing cells can have a value greater than half the average for that location (the location

average is calculated in column G). This requires a total of eight constraints — one for each variable cell

where the value is less than or equal to the value in the average cell for that location.

c. Fix the Solver parameters and then run Solver.

d. Keep the Solver solution and create a new scenario named Solver Results.

11. Create a scenario summary report to show the changing results for cell G24 only

12. Save and close the workbook

13. Upload and save your project file.

14. Submit project for grading. Step 2

Upload & Save

Step 3

Grade my Project

BSBCRT401 Articulate, Present And Debate Ideas

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BSBCRT401/.DS_Store

__MACOSX/BSBCRT401/._.DS_Store

BSBCRT401/BSBCRT401 SAG v1.0.docx

 

 
Student Assessment Guide
 
BSBCRT401

Articulate, Present and Debate Ideas
 

 

 

Student Assessment Guide – BSBCRT401 Version 1 – July 2017

Intellectual Property Statement

VET Fair (ABN 44 983 956 589) is a provider of educational products and services for the vocational education and training (VET) sector.

By purchasing the ‘BSBCRT401 Articulate, Present and Debate Ideas’ assessment resources (“Product”), you are entitled to use it for educational purposes only, but the intellectual property remains with VET Fair. This Product includes the following components:

· Assessor Guide

· Student Assessment Guide

· Student Assessment Workbook

· any other material to support the implementation of the Product (e.g. policy and procedures, templates, etc.).

VET Fair owns all copyright to the Product as subject to the provisions of the Copyright Act 1968.

This purchase grants you a non-exclusive, perpetual, non-sublicensable, and non-shareable right to use and contextualise this Product. You have the right to distribute unlimited copies of this Product to your students or internal staff, limited to only for educational purposes; however, you must not:

a) reproduce this Product or produce other assessment resources based on this Product

b) share this Product with any other external person or entity other than your students and internal staff through physical or electronic including online access

c) use this Product for any other purposes than education (e.g. assessing student competency, conducting validation and moderation activities, etc.)

d) resell this Product to any party of individual

e) use this Product without affixing the following statement in each copy of a modified, adapted, customised or contextualised version of this Product that is distributed electronically or in a physical format to your target learner audience:

“The assessment activities and information in this guide are derived from the BSBCRT401 Articulate, Present and Debate Ideas assessment resources provided by VET Fair. VET Fair owns all copyright to this information and the intellectual property of this resource remains with VET Fair.”

Breaches of this copyright will result in VET Fair claiming for loss of sales.

 

Table of Contents Assessment Information 1 Assessment Event 1 – Knowledge Questions 2 Question 1 2 Question 2 2 Question 3 2 Question 4 2 Question 5 3 Assessment Event 2: Go Green Simulation 3 Task 1: Analyse ideas for communication to others 3 1.1 List and describe the key facts about the Go Green initiative 3 1.2 Identify positions with the Go Green initiative 3 1.3 Identify ways of communicating Go Green ideas for different purposes and people 3 1.4 List and describe techniques to engage and fascinate others with Go Green ideas 3 1.5 List and describe the skills and attributes required to communicate ideas 4 1.6 Plan the use of digital tools to store and present information 4 Task 2: Provoke response and reaction 4 2.1 Use different techniques to engage and fascinate 4 2.2 Creates innovating approaches to different communication challenges 4 2.3 Takes risks in communicating ideas 4 Task 3: Debate ideas to achieve commitment to the Go Green initiative 4 3.1 Articulates substantiated positions on ideas 4 3.2 Is open to critical analysis 4 3.3 Argues substantiated position 4 3.4 Participate in conversations to generate new ideas 5 Appendix A: Go Green Simulation 5 Go Green Simulation Background 5 Simulation Phases 5 Your Role in the Simulation 5 Phase 1: 5 Phase 2: 5 Phase 3: 6 Assessment Conditions for the Observation 7 Appendix B: Observation Check Sheet 8

 

Assessment Information

Welcome to your Student Assessment Guide for BSBCRT401 Articulate, Present and Debate Ideas. This Guide provides you with information on the assessment particularly what you have to do and to what level of performance.

This assessment has the following two events:

Assessment Event 1 – Knowledge Questions
There are five questions that will provide us with evidence of your general knowledge of key principles and techniques associated with planning and articulating ideas.

This assessment is completed in your own time and by a submission date provided by your Assessor. You may use support material in the development of your responses, but you must indicate the source. In addition, you must not ‘cut and paste’ content from your source, rather, use your words, unless it is a direct quote.
 
Assessment Event 2 – Simulation: Go Green
You will complete a number of tasks that will provide us with evidence of your skills with planning then debating ideas to influence commitment to the Go Green initiative. These tasks will be based on your role of Project Officer in a simulation with your RTO.

Remember, you do not type your responses in this Student Assessment Guide, but use the Student Assessment Workbook, which is a separate document. This document is simply a guide to explain what you are required to do, and by doing so, this will assist you to perform at your best.

Please note that your responses for both assessment events can (where appropriate) use dot point format. See below for an example of a dot point response and a full sentence response.

Dot point format Presentation Plan includes the following:

· outcomes

· needs of the audience

· context.
   
Full sentence format When you are preparing for a Presentation, there are a number of tasks that must be carried out. These are; listing the outcomes that you want to achieve, followed by the identification of the needs of your audience. When you have completed these two tasks, you then check on the room you will be conducting the simulation in etc.

Performance required

· complete all of the questions and tasks listed in this Student Assessment Workbook

· ensure that your responses meet the requirements

· ensure that these responses are relevant, accurate and specific

· submit your completed Student Assessment Workbook to your Assessor electronically (note, your Assessor may allow you to submit Assessment Event 1 and receive feedback before starting Assessment Event 2)

· submit your Student Assessment Workbook within the timeframes given by your Assessor

· ensure your work is your own and in your words

· where you use an external source for information, you must provide citation.

Please be aware that your Assessor is here to provide you with the necessary support throughout the assessment process. If you have questions, then contact them for guidance.

Assessment Event 1 – Knowledge Questions

These questions are theoretical and provide evidence of your understanding of communication skills particularly using creative techniques to engage.

Each question includes the requirements which indicate what you have to do and the depth of your response to achieve a satisfactory result.

Question 1

In the table below, explain different ways in which individual receive and respond to ideas and information and the factors that influence their response.

R 1. identify methods that individuals receive and respond to ideas and information:

a. list and explain three methods

b. word count is approximately 25 words for each explanation

R 2. list four factors for each method.

Methods Explanation Factors influencing their response
     
     
     

Question 2

Identify the enabling skills and attributes of people needed to effectively discuss ideas.

R 1. list five attributes required to discuss ideas

R 2. list five skills required to discuss ideas.

Question 3

Describe the nature and role of risk taking in the presentation and debate of ideas.

R 1. explain the concept of risk taking in approximately 20 words

R 2. explain two roles that risk taking can play

R 3. word count is approximately 150 in total.

Question 4

Explain the role and techniques with storytelling in communicating ideas.

R 1. explain two roles of storytelling

R 2. list four techniques of storytelling

R 3. word count is approximately 75 words in total.

Question 5

Describe common techniques to tailor comments to particular audiences.

R 1. describe five techniques

R 2. word count is approximately 75 words in total.

Assessment Event 2: Go Green Simulation

In this assessment, you will undertake a number of tasks associated with the preparation and then implementation of a persuasive discussion to a set of stakeholders on the merits and challenges of the RTO becoming more environmentally sustainable.

In this simulation you will perform the following actions:

· analyse ideas to communicate to stakeholders

· deliver ideas to provoke a response

· debate ideas.

Please ensure that you familiarise yourself with this set of requirements that underpin this simulation. This includes understanding the background of the simulation and the criteria you will be assessed on. These are located in the Appendix of this document.

Task 1: Analyse ideas for communication to others

In this task, you will plan how you will have stakeholders embrace the implementation of the Go Green initiative.

1.1 List and describe the key facts about the Go Green initiative

R 1. research and list five facts about sustainability in the RTO

R 2. word count is approximately 50 words per fact.

1.2 Identify positions with the Go Green initiative

R 1. describe three potential positions of end users

R 2. describe three positions you have with the project

R 3. word count is approximately 100 words per description.

1.3 Identify ways of communicating Go Green ideas for different purposes and people

R 1. identify and describe four communication methods:

· with each method describe the purpose

· with each method describe the requirements to meet the needs of various end users to the project

R 2. word count is approximately 75 words for each method.

1.4 List and describe techniques to engage and fascinate others with Go Green ideas

R 1. describe at least two examples of engaging others

R 2. word count is approximately 200 words for each example.

1.5 List and describe the skills and attributes required to communicate ideas

R 1. identify and explain four attributes and five skills required to discuss ideas

R 2. word count is approximately 5 words for each attribute and skill.

1.6 Plan the use of digital tools to store and present information

R 1. use a minimum of one digital resource in the preparation and presenting of ideas

R 2. word count is not critical.

Task 2: Provoke response and reaction

In this task, you will implement your plan in an effort to get a response and reaction from end-users of the Go Green initiative.

2.1 Use different techniques to engage and fascinate

R 1. uses a communication technique to get attention to the project

R 2. word count is not critical but this task will have a duration of ten minutes.

2.2 Creates innovating approaches to different communication challenges

R 1. uses a communication technique to get attention to the project

R 2. word count is not critical but this task will have a duration of ten minutes.

2.3 Takes risks in communicating ideas

R 1. uses a communication technique that has a level of risk to the individual (both student and stakeholder)

R 2. word count is not critical but this task will be part of either 2.1 or 2.2 and have a duration of ten minutes.

 

Task 3: Debate ideas to achieve commitment to the Go Green initiative

In this task, you will continue with the engagement of stakeholders to get a level of commitment to the project.

3.1 Articulates substantiated positions on ideas

R 1. describes key facts about the Go Green initiative

R 2. articulates position on the Go Green initiative

R 3. word count is not critical but this task will have a duration of five minutes.

3.2 Is open to critical analysis

R 1. listens to the view of others

R 2. does not take a defensive response but is open to the ideas being generated

R 3. treats these ideas as opportunities to develop new understandings

R 4. word count is not critical but this task will have a duration of ten minutes.

3.3 Argues substantiated position

R 1. includes where appropriate the view of others and adjust substantiated position

R 2. with views that are inappropriate, explains the limitations of their ideas

R 3. uses other communication approaches to influence substantiated position

R 4. word count is not critical but this task will have a duration of ten minutes.

3.4 Participate in conversations to generate new ideas

R 1. identifies areas mutual acceptance

R 2. identifies areas of disagreement

R 3. invites collaboration on strategies to refine ideas

R 4. reflects on this refinement and where possible embraces new ideas

R 5. word count is not critical but this task will have a duration of ten minutes.

 

Appendix A: Go Green Simulation

Go Green Simulation Background

Your Registered Training Organisation (RTO) where you are enrolled will have a number of operational procedures for managing the college. In recent times, the RTO has been moving to a more sustainable model where it would like to take a number of steps to improve its carbon foot print. The Manager has branded this initiative as ‘Go Green’ and intends for the organisation to become a responsible corporate citizen in terms of protecting the environment.

Management is aware that one of the challenges to this implementation will be overcoming the resistance of students and staff to taking on this change initiative. In this simulation, the Manager has requested that the Project Officer (you the student) develop an approach to engage stakeholders to commit to the Go Green Project. The manager is well aware that this will require crafting and implementing dialogue that will generate collaboration to the project.

Simulation Phases

This simulation is divided into the following phases:

Phase 1: analyse ideas to communicate to stakeholders
   
Phase 2: deliver ideas to provoke a response
   
Phase 3: debate ideas.

Your Role in the Simulation

You will be the Project Officer of Go Green in the simulation. Your roles and responsibilities in the simulation are as follows:

Phase 1:

Phase 1 occurs from Task 1.1 to Task 1.4. In Phase 1 your main duties in the organisation are as follows:

· Identifies the themes in the communication of the ideas

· Identifies methods of communication

· Identifies the skills and attributes required to participate in the discussion of the ideas.

· Identifies the technologies required to communicate the ideas

Phase 2:

Phase 2 occurs in Tasks 2.1 through to Task 2.3.

This simulation will have a duration of 60 minutes where you will interact with a minimum of two stakeholders who will be role played by the RTO staff, to gain attention and provoke a response to the Go Green initiative. Note that your Assessor will not play a role in this observation activity as they will be observing your interaction with the stakeholders and documenting evidence in the Observation Check Sheet(s) provided in Appendix B.

In Phase 2 your main duties in the organisation are as follows:

· Interact with stakeholders to trigger a reaction to the Go Green initiative

Phase 3:

Phase 3 occurs from Task 3.1 through to Task 3.4. In Phase 3 your main duties in the organisation are as follows:

· generate dialogue on go green initiative

· seek refinement to the initiative.

 

Assessment Conditions for the Observation

The information in this section outlines the assessment conditions for the Observation which occurs in phases 2 and 3 and involves your interaction with two stakeholders.

Before the Observation:

· you must ensure that you have read and understood any documents required to undertake the Observation

· you must ensure that you have read and understood all performance requirements listed under each task

· you must ensure that you have read the requirements listed in the Observation Check Sheet as your performance will be judged based on these criteria (see Appendix B)

· your Assessor will inform you of the date of your Observation.

During the Observation:

· you will be interacting with the Administration Officer and a Trainer

· it has a total duration of 60 minutes

· other students will not be observers during the session as this will give them an unfair advantage

· these stakeholders will be role played by staff from the RTO or other externals

· your Assessor will brief them on your topic so that they can carry out their actions in an appropriate manner

· you cannot refer to the Observation Check Sheet while undertaking the Observation

· your Assessor will:

· observe you individually based on the criteria in the Observation Check Sheet

· document their observations in detail on the Observation Check Sheet

· provide extensive written feedback

· ensure that the session will be free from distractions

· you must comply with WHS requirements

· you must demonstrate all the criteria in the Observation Check Sheet to achieve a satisfactory result for the Observation.

If you are not successful, after the observation, the Assessor will:

· provide written feedback on the Observation Check Sheet explaining their justification in detail

· communicate this feedback to you

· arrange another suitable time to observe your second attempt.

 

Appendix B: Observation Check Sheet

We have provided the Observation Check Sheet(s) for you to prepare for your assessment with the Assessor. Remember, you will not be able to use this Check Sheet(s) during this session. However, we recommend you use this as a planning tool so that you are fully prepared for the observation.

Note that you must demonstrate all the criteria listed in the following Observation Check Sheet(s) to be deemed satisfactory.

 

Performance requirements:
· welcomes participants:

· friendly

· introduces each other

· is positive
Provoke response and reaction:
· commences with a dynamic opening:

· delivery is energising

· content is concise

· content is relevant to the pitch

· content and delivery is novel

· delivery gains attention

· and it generates interest

· it produces a response
· uses an additional communication technique to address communication challenges such as:

· stakeholder(s) are not engaging with content

· to provoke further reaction

· this technique:

· is energising

· is concise

· is relevant to the pitch

· is novel

· gains attention

· generates interest

· produces a response
· these techniques have a level of risk such as:

· acknowledges own limits

· gives personal information

· shows vulnerabilities

· asks for help in a controlled manner

· challenges current norms, such as position will be different to what is accepted by the group

· Uses an alternative style to what is preferred such as use of humour
Debate ideas:
· information is presented covering topics such as:

· what has been achieved

· what areas need addressing

· the impact of these issues on the organisation

· the benefits of sustainability
· this information is accurate and grounded on research
· this information is logical and rational in thought
· uses technology to support the message:

· uses a resource aid

· resource aid supports understanding

· is used in a professional manner

 
· seeks input on their views:

· encourages a response

· uses open questions to explore issues

· listens and does not interrupt

· validates contribution

· clarifies this feedback to confirm understanding

· takes notes to ensure points are not lost

· includes where appropriate, the views of others by adjusting one’s substantiated position(s)

· where views are considered as inappropriate, explains the limitation of their ideas

· uses other methods to influence substantiated positions

· reflects on areas of mutual agreement

· reflects on areas of disagreement

· invites further collaboration to attempt to refine ideas that are acceptable to both parties

· commits to new ideas
Appropriate Communication Skills:
· body language skills:

· maintains eye contact

· uses appropriate facial expressions

· posture is appropriate

· gestures fit message
· verbal skills:

· vocal pitch is appropriate

· tone is pleasant

· pace is at the right speed to achieve clarity

· volume is appropriate for participants
· sensitive to the cultural diversity of the participants:

· language avoids jargon

· language is easy to understand

· level of formality shows respect

· content is non-sensitive

· watches for non-verbal signs of both participants

· seeks input if withdrawn through direct open questioning
· appropriate use of emotions:

· processes emotions of self and participants and stayed calm

· feeds back to the group, emerging issues

· these interpretations are accurate and appropriate
Trust:
· session is presented in an interesting way:

· generates enthusiasm

· material is comprehensive
· the student is credible:

· knowledgeable

· honest

· sincere

· motivating

· confident
· the student is professional:

· concise

· organised

· uses resources where appropriate

· does not read from notes

· does not lose focus

 

 

Student Assessment Guide – BSBCRT401 Version 1 – July 2017

__MACOSX/BSBCRT401/._BSBCRT401 SAG v1.0.docx

BSBCRT401/BSBCRT401 SAW v1.0.docx

 
Student Assessment Workbook
 
BSBCRT401

Articulate, Present and Debate Ideas
 
Student Full Name:  
Student ID:  
Date Submitted:  
 

Assessment – BSBCRT401 Version 1 – July 2017

Assessment Information

Welcome to your Student Assessment Workbook for BSBCRT401 Articulate, Present and Debate Ideas.

This Workbook is where you will write all your responses for the knowledge questions and simulation tasks. Please refer to the Student Assessment Guide for more information.

This assessment has the following two events:

Assessment Event 1 – Knowledge Questions
There are five questions that will provide us with evidence of your general knowledge of key principles and techniques associated with planning and articulating ideas.

 

This assessment is completed in your own time and by a submission date provided by your Assessor. You may use support material in the development of your responses, but you must indicate the source. In addition, you must not ‘cut and paste’ content from your source, rather, use your words, unless it is a direct quote.
 
Assessment Event 2 – Simulation: Go Green
You will complete a number of tasks that will provide us with evidence of your skills with planning then debating ideas to influence commitment to the Go Green initiative. These tasks will be based on your role of Project Officer in a simulation with your RTO.

Please note that your responses for both assessment events can (where appropriate) use dot point format. See below an example of a dot point response and a full sentence response.

Dot point format Presentation Plan includes the following:

· outcomes

· needs of the audience

· context.
   
Full sentence format When you are preparing for a presentation, there are a number of tasks that must be carried out. These are listing the outcomes that you want to achieve, followed by the identification of the needs of your audience. When you have completed these two tasks you then check on the room that you will be conducting the presentation in.

To Achieve Competence

To be deemed competent for this unit, you will need to meet the following requirements:

· complete all of the questions and tasks listed in this Student Assessment Workbook

· ensure that your responses meet the performance requirements

· ensure that these responses are relevant, accurate and specific

· submit your completed Student Assessment Workbook to your Assessor electronically (note, your Assessor may allow you to submit Assessment Event 1 and receive feedback before starting Assessment Event 2)

· submit your Student Assessment Workbook within the timeframes given by your Assessor

· ensure your work is your own and in your words

· where you use an external source for information, you must provide citation.

Pre-assessment Checklist

Your assessor will go through the assessment for this unit, BSBCRT401 Articulate, Present and Debate Ideas. It is important that you understand this assessment before taking on the questions and tasks. To confirm that you have been given this overview, we ask you to complete the following Pre-Assessment Checklist.

You are required to carefully read each checklist item provided below and tick either ‘Y’ to confirm your understanding or ‘N’ if you disagree. In case you disagree with an item, please provide your reason under the ‘Comments’ column.

When you have done this, we ask you to sign this Pre-Assessment Checklist. This acknowledges that your Trainer/Assessor has discussed all of the information with you prior to undertaking this assessment.

Pre – assessment Checklist Comments
Y N I, the student, understand the purpose of the assessment.  
Y N I understand when and where the assessment will occur, who will assess and in what format the assessment will be submitted.  
Y N I understand the methods of assessment.  
Y N I understand what resources are required to complete this assessment.  
Y N I understand the performance level required for each assessment event.  
Y N I understand that it must be my own work. I have been explained and understand the serious consequences in case this work is found plagiarised.  
Y N I understand the process if I am deemed not yet competent.  
Y N I understand the feedback process and the appeals process.  
Y N The assessor has discussed with me if I have any special needs and if so what arrangements have been made.  

 

Student Full Name   Student ID   Student Signature   Date

 

 

Assessment Event 1 – Knowledge Questions

These questions are theoretical and provide evidence of your understanding of communication skills particularly using creative techniques to engage.

Question 1

In the table below, explain different ways in which individual receive and respond to ideas and information and the factors that influence their response.

Write your response into the table:

Methods Explanation Factors influencing their response
     
     
     

Question 2

Identify the enabling skills and attributes of people needed to effectively discuss ideas.

Write your response here:

 

Question 3

Describe the nature and role of risk taking in the presentation and debate of ideas.

Write your response here:

 

Question 4

Explain the role and techniques with storytelling in communicating ideas.

Write your response here:

 

Question 5

Describe common techniques to tailor comments to particular audiences.

Write your response here:

Assessment Event 2 – Go Green Simulation

In this assessment, you will undertake a number of tasks associated with the preparation and then implementation of a persuasive discussion to a set of stakeholders on the merits and challenges of the RTO becoming more environmentally sustainable.

In this simulation you will perform the following actions:

· analyse ideas to communicate to stakeholders

· deliver ideas to provoke a response

· debate ideas.

 

Task 1: Analyse ideas for communication to others

In this task, you will plan how you will have stakeholders embrace the implementation of the Go Green initiative.

1.1 List and describe the key facts about the Go Green initiative

Write your response here:

 

 

1.2 Identify positions with the Go Green initiative

Write your response here:

1.3 Identify ways of communicating Go Green ideas for different purposes and people

Write your response into the table:

Communication options Purpose (outcomes) People (suited to which position)
     
     
     

1.4 List and describe techniques to engage and fascinate others with Go Green ideas

Write your response here:

 

1.5 List and describe the skills and attributes required to communicate ideas

Write your response here:

 

 

1.6 Plan the use of digital tools to store and present information

Write your response here:

 

Task 2: Provoke response and reaction

In this task you will implement your plan in an effort to get a response and reaction from end-users of the Go Green initiative.

2.1 Use different techniques to engage and fascinate

Write your response here:

2.2 Creates innovating approaches to different communication challenges

Write your response here:

2.3 Takes risks in communicating ideas

Write your response here:

 

Task 3: Debate ideas to achieve commitment to the Go Green initiative

In this task you will continue with the engagement of stakeholders to get a level of commitment to the project.

3.1 Articulates substantiated positions on ideas

Write your response here:

3.2 Is open to critical analysis

Write your response here:

3.3 Argues substantiated position

Write your response here:

3.4 Participate in conversations to generate new ideas

Write your response here:

 

 

 

  For Assessor Use Only  
     

 

Task Outcome Sheets

The Outcome Sheet below is the assessment questions and tasks for each of the assessment events that the student is required to complete. Assessors, tick ‘S’ if the student achieved a satisfactory outcome for an assessment task and ‘NYS’ if the student does not meet these requirements. Also, you are required to write comments on the quality of this evidence under the ‘Comments’ column. For your judgement on the student’s overall performance, tick ‘Satisfactory’ if the student achieves a satisfactory outcome for all of the tasks or ‘Not-Yet-Satisfactory’.

Assessment Event 1

Assessment Event 1 Knowledge Questions S NYS Comments
Question 1      
Question 2      
Question 3      
Question 4      
Question 5      
The student’s performance for Assessment Event 1 is Satisfactory Not-Yet-Satisfactory
Assessor Signature: Date:  

 

Assessment Event 2 – Simulation

Assessment Event 2 S NYS Comments
Task 1:

Analyse ideas for communication to others

 Sub Task 1.1      
  Sub Task 1.2      
  Sub Task 1.3      
  Sub Task 1.4      
  Sub Task 1.5      
  Sub Task 1.6      
Task 2:

Provoke response and reaction

 Sub Task 2.1      
  Sub Task 2.2      
  Sub Task 2.3      
Task 3:

Debate ideas to achieve commitment to the Go Green initiative

 Sub Task 3.1      
  Sub Task 3.2      
  Sub Task

3.3

      
  Sub Task

3.4

      
The student’s overall performance is Satisfactory Not-Yet-Satisfactory
Assessor Signature: Date:  

 

Assessment Outcome Sheet

Student ID   Family Name   First Name  
Course Code   Course Title  
Unit Code BSBCRT401 Unit Title Articulate, Present and Debate Ideas
Assessment Outcome

Assessor, please tick and date the student’s final outcome of this assessment:
Initial Submission Date Re-submission 1 Date Re-submission 2 Date
|_| C |_| NYC ___/___/____ |_| C |_| NYC ___/___/____ |_| C |_| NYC ___/___/____

Assessor’s Feedback

Assessor, please provide your comments on the student’s final outcome of this assessment:

 
Assessor Full Name   Signature   Date  

 

 
Receipt of Student’s Assessment

Assessor, you must provide the completed copy of this receipt to the student as an evidence of submission of their assessment to you.
Student ID   Family Name   First Name  
Course Code   Course Title  
Unit Code BSBCRT401 Unit Title Articulate, Present and Debate Ideas
Due Date __/__/___ Date Received __/__/___ Extension

Approved

 Y N Date Approved __/__/___
Initial Submission Re-submission 1 Re-submission 2 Assessor’s Signature  

 

 

 

Student Feedback Form

Dear Student,

We are keen to improve our products and services, and assessment tools are a key part of this. Therefore, we would welcome your feedback on the assessment. If you could take a few minutes to complete the form below, it would be greatly appreciated. Please provide thoughtful responses as your opinions are highly valued.

Yes No Questions
Y N Did the assessment cover the training you received for this unit?
Y N Were the tasks in Assessment Event 2 based on realistic activities that you would expect to be doing in a workplace?
Y N Did you understand the assessment instructions?
Y N Were the tasks easy to understand?
Y N Did the Assessor set up and run the simulation professionally?
Y N Was the Assessor’s decision fair?
Y N Was the Assessor’s feedback specific?
Y N Was the Assessor’s feedback comprehensive?
Y N Was the Assessor’s feedback constructive?
Y N Was the Assessor’s feedback timely?
Y N Were you satisfied with your effort in this assessment?
What would you change about this assessment?  
What could the Assessor have done differently to improve the assessment process and/or assessment feedback?  
Overall, what was the most significant challenge of this assessment?  
Overall, what did you like the most about this assessment?  
Do you have any other comments?  

 

Assessment – BSBCRT401 Version 1 – July 2017

 

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