On 26 June 2024, the Board of the Egyptian Financial Regulatory Authority (the “FRA”) issued its decision No. 140 of 2024 amending the requirements governing the granting of and continuation of licenses and the ownership of companies’ shares carrying out non-banking financial activities. This decision introduced the concept of special purpose acquisition companies (the “SPAC”). The FRA also issued its decision No. 148 of 2024, setting out the specific rules governing the listing and trading of SPAC’s shares.
Both decisions were published in the Egyptian Gazette on 23 July 2024, and came into force the following day.
The FRA Decisions No. 140 of 2024 and 148 of 2024
SPACs are commonplace amongst transaction and capital markets practitioners. It refers to a vehicle that does not carry out any commercial operations and is solely established for the purpose of raising capital through an initial public offering (IPO) with the intention of merging with or acquiring an existing company.
As a result, the acquired company becomes subject to tighter regulatory scrutiny, because of its ownership by the SPAC, which is a listed company. On one hand, the acquired company would become more attractive to investors due to its affiliation with a listed shareholder—a status it may not have been able to achieve otherwise, due to its size or other factors preventing it from listing its shares. Furthermore, investors are directly injecting their funds into the SPAC, providing them with the safety and comfort associated with a listed company that is subject to strict compliance and supervision by its regulator and the stock exchange.
According to the FRA decisions, a SPAC is defined as a company that is established and licensed as a venture capital entity, with the sole purpose of acquiring other companies. It receives the necessary funding to carry out such acquisitions by offering capital increases at it for private subscription.
Listing Requirements – Timelines
SPACs must submit a request to list their shares on the Egyptian stock exchange within a month from obtaining their FRA license, or else such license shall be deemed of no effect. Conversely, if their shares are delisted from the stock exchange, the license will be revoked and the SPACs are expected to commence liquidation, unless they submit reasonable grounds to the FRA to not liquidate.
Listing requirements – regulatory requirements
In order to be temporarily listed on the stock exchange, a SPAC’s issued and paid-up capital must not be less than Ten Million EGP.
This share capital must be increased, in cash, to be One Hundred Million EGP within three months from the date of listing the shares on the stock exchange. The capital increase shares shall be only offered to private subscription by the following persons:
(a) Qualifying investors, which are:
i) natural persons of relevant experience that is not less than 10 years in managing and investing funds, direct investment or related banking and non-banking financial activities, provided that the liquid assets, securities and financial instruments owned by these persons are not less than Ten Million EGP;
ii) Governmental, public and State entities which governing laws and regulations allow them to carry out financial and investment activities, including the incorporation of companies and investing thereat; and
(iii) Financial companies which ownership rights are not less than Ten Million EGP.
(b) Financial institutions specified by the FRA
The information memorandum shared with the above persons shall include the minimum level of information required by the FRA to ensure that the target investors make an informed decision of acquiring the SPAC’s shares. Such information comprises, for example, the targeted sectors and investment constraints, the SPAC’s investment strategy, investment risks, related parties and conflict of interest rules and the framework governing the management of the venture capital including collections made through the private subscription process.
Following completion of the private subscription process, the number of the SPAC’s shareholders cannot be less than 50. Moreover, 5% at least of the SPAC’s share capital must remain “free-floating”, in compliance with the FRA’s requirements.
The Acquisition of Target Companies
The detailed acquisition plan of the target(s) must be presented to the SPAC’s general assembly for its approval, within 6 months of the SPAC’s listing on the stock exchange. The acquisition plan itself must be executed within two years of the SPAC’s listing. The SPAC may fully acquire the target or acquire a controlling percentage or absolute majority of its share capital or its voting rights. Thereafter, it would at the SPAC general assembly’s discretion to decide whether to merge with the acquired entity or rather for it to remain as a subsidiary.
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