The Financial Regulatory Authority (FRA) has approved the establishment and licensing of special-purpose acquisition companies (SPAC) in Egypt for the first time, the FRA announced on Monday.
SPACs are companies created with the sole purpose of raising capital through an IPO to acquire or merge with another company.
Mohamed Omran, Chairperson of the FRA, said that the decision reflects the interest in creating financing solutions that would facilitate the access of investors, especially small and medium-sized companies, to financing in order to support Egypt’s Vision 2030, which seeks to empower the private sector and support its expansion.
He added that the Authority’s initiative will provide an opportunity for emerging and promising companies on the one hand, especially in the field of technology and digital technologies, and investors on the other hand, to achieve the desired investment goals for each of them by establishing a company for this purpose whose shares are listed in the Stock Exchange and its goal is to acquire or merge the target companies, provided that the company’s shares are made available to trade.
He added that these types of SPACs are subject to the provisions of the Capital Market Law No. 95 of 1992 and are companies that are established for the sole purpose of acquisition or merger of targeted companies from emerging companies, especially in the field of technology and digital technologies, by establishing a company of the founders (the main shareholders) as a venture capital company, followed by an offering of capital increase shares by public subscription and/or private placement. The proceeds of the subscription are then used to acquire one or more companies or projects after the subscription.
Omran explained that the company with the purpose of acquisition obtains the required financing by offering shares in public subscription and/or private offering, and the proceeds of the subscription are kept in a bank account under specific conditions until the required acquisition is made within the company’s time period, with a maximum of two years. If the planned acquisition has not taken place, the SPAC is obligated to return the funds to the investors, after deducting the prescribed commissions and other expenses.
Omran stressed the FRA’s keenness to study and analyze the international practices of SPACs, in preparation for a conception of the rules for listing and writing off securities related to this type of company.