The Financial Regulatory Authority (FRA) issued on Sunday the rules and regulations for companies looking to establish special-purpose acquisition companies (SPACs).
SPACs are companies created with the sole purpose of raising capital through an IPO to acquire or merge with another company.
The rules include the timeline for companies to pull the trigger on SPAC mergers and list on the Egyptian Exchange (EGX), as well as requirements on shareholder structure and minimum capital. The regulator has also issued amendments to listing and delisting rules on the bourse to make way for SPACs to hit the EGX.
The regulations come a few weeks after the proposal spearheaded by EGX Chairperson Mohamed Farid received the green light from the FRA.
The FRA also issued Resolution No. 172 for the year 2021, which includes an amendment to the rules for listing and writing off securities on the EGX.
Mohamed Omran, Chairperson of the FRA, said that those wishing to engage in the activity of SPACs must follow the procedures of incorporation and licensing of venture capital activity in accordance with the provisions in force so that the issued and paid-up capital of the company is not less than EGP 10m, paid by founders/sponsors.
He added that SPAC must commit to increasing its capital within a month from the date of its registration in the authority through public subscription and/or private offering based on the investment plan to acquire the target companies. Then, it should re-form its board of directors in accordance with a decision of the General Assembly after completing the procedures for increasing. Finally, a managing director is elected from the founders (sponsors).
Omran explained that the new resolutions have regulated the ownership structure of the founders and determined the percentage of legal persons’ ownership to not be less than 50% of the company’s capital, provided that the percentage of financial institutions and/or qualified investors shall not be less than 25% of its capital, and The founders/Sponsors’ contribution 5% of the company’s capital after increasing its capital, and their shares must not be less than EGP 10m when the company is established.
According to Omran, an amendment was made to the registration rules and an article was introduced that allows for the registration of shares of companies with the purpose of acquisition, and the non-applicability of the provisions for submitting financial statements for the two fiscal years preceding the application for registration. Any pledges in the main shareholders’ retention rate shall not be less than 51% of the shares owned by them in the capital. The percentage of net profit in the last fiscal year prior to the application for registration should not be less than 5% of the capital. Treasury shares must be retained for a period of three months.
On the other hand, the company targeted for acquisition must meet the rules of listing in EGX, unless it is one of the startups or promising companies working in the field of technology, innovations, and digital technologies, in which case it would be excluded from the provisions of items (5, 7, 8) of Article (7) of the rules for listing and delisting securities in the stock exchange.
He also stressed that the purpose of SPAC is limited to acquiring ownership percentages in entities or companies within two years from the date of completing the capital increase through offering three alternatives. They include: 100% acquisition of the capital or voting rights, followed by the merger in the company, or acquiring a controlling percentage of the capital or voting rights in excess of the percentage necessary to take the merger decision, or acquiring a percentage representing an absolute majority of the capital or voting rights.
Omran stated that the board of directors of the authority has approved setting a number of controls for the targeted investment in order to be in line with the basic objective of establishing companies with the purpose of acquisition as a preferred method for many experienced founders and main shareholders, bearing in mind that the value of the acquired company represents at least 80% of the volume of the proceeds of funds available.