FRA issues rules governing SPACs in Egypt

CAIRO – 21 November 2021: The Financial Regulatory Authority (FRA), issued two resolutions No. (171 and 172) of 2021, which includes the rules governing the activity of companies with the purpose of acquisition, known as SPAC.

According to a statement from the authority, the two decisions include an amendment to the rules for listing and delisting securities on the Egyptian Stock Exchange after the approval of the authority’s board of directors at its meeting, and its briefing on the best international practices for this type of company and its study in the United States of America, Britain, Singapore, Sweden, and Malaysia and Hong Kong.

This aims to implement the initiative launched by the authority at the beginning of this month by providing a newly developed financing method in the Egyptian market for emerging companies, especially in the field of technology, innovations, and digital technologies, and allowing the establishment of companies with the purpose of acquisition as a venture capital company in accordance with Article ( 27) of the Capital Market Law No. (95) Of 1992 and its amendments.

Head of FRA Mohamed Omran said that the interest in creating financing solutions that would facilitate investors’ access to financing to achieve Egypt’s Vision 2030 was the motive behind launching the authority’s initiative, and inviting those wishing to practice the activity of companies with the purpose of acquisition (SPAC) to follow the procedures of incorporation and licensing to engage in venture capital activity in accordance with the provisions in force. In this regard, the Authority, so that the issued and paid-up capital of the company is not less than LE 10 million, to be paid by the founders/sponsors.

He added that the SPAC must commit to increasing its capital within a month from the date of its registration with the authority through public subscription and/or private offering based on the investment plan to acquire the target companies.

"Then its board of directors is re-formed in accordance with a decision of the General Assembly after the capital increase procedures are completed, and the managing director is elected from among the founders (sponsors), and the conditions of expertise specified in the executive decisions issued by the authority regarding direct investment companies apply to him,” he said.

The Chairman of the Authority clarified that the provisions of the articles of Resolution No. (171) of 2021 have regulated the founders’ ownership structure 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 a contribution Founders / Sponsors (5%) of the company's capital after increasing its capital, and their contribution must not be less than 10 million pounds when the company is established.

According to Omran, an amendment was made to the rules for listing and delisting securities on the Egyptian Stock Exchange by Resolution No. (172) of 2021 and the creation of an article allowing the registration of shares of companies with the purpose of acquisition (SPAC), and the non-applicability of the provisions for submitting financial statements for the two financial years preceding the application for registration, and any undertakings that the main shareholders’ retention rate shall not be less than 51% of the shares owned by them in the capital of a SPAC, and a stipulation that the percentage of net profit in the last fiscal year prior to the application for registration shall not be less than 5% of the capital, and ending with the retention of treasury shares for a period 3 months.

On the other hand, the company targeted for acquisition must meet the rules of listing in the stock exchange, unless it is an emerging or promising company that works in the field of technology, innovations, and digital technologies, in which case it is 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 confirmed that the purpose of the SPAC is limited to acquiring ownership percentages in entities or companies within two years from the date of completing the capital increase through offering through 3 alternatives, either 100% acquisition of the capital or voting rights, followed by the merger in the company, or Acquisition of a controlling percentage of the capital or voting rights in excess of the percentage required to take the merger decision, or the acquisition of 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 target investment in order to be in line with the main objective of establishing companies with the purpose of acquisition as a preferred method for many experienced founders and major shareholders, foremost of which is that the target company fulfills the rules of listing in the Egyptian Stock Exchange, unless Be one of the emerging companies working in promising fields such as technology and innovation companies, or any other fields approved by the Authority according to the justifications presented to it by the founder.

This comes with taking into account that the value of the acquired company represents at least 80% of the volume of the proceeds of the available funds - which represents the proceeds of the subscription plus any additional financing or the purchase of shares of shareholders wishing to exit from the company, deducting any refunds of the values ​​of the shares - and the obligation to evaluate The target company may seek the assistance of one of the independent financial advisors registered in the Authority’s records.

The Chairman of the Authority indicated that the draft acquisition decision, including full details of the activity of the company targeted for acquisition, must be presented to the company’s extraordinary general assembly, excluding the participation of the founders and people associated with them in the voting process on the acquisition decision, and the shareholders who object to the acquisition decision at the General Assembly must exit within thirty days from the date of voting on the General Assembly resolution through 3 alternatives, either by selling the shares of the objecting shareholders in the stock exchange, or by the company buying their shares as treasury shares, or by purchasing additional financiers of their shares.