The Financial Regulatory Authority (FRA) of Egypt has issued new controls for listing and trading shares of special purpose acquisition companies (SPAC) on the Egyptian Stock Exchange. The updated regulations, encapsulated in Decisions No. (140) and (148) of 2024, aim to enhance the efficiency and competitiveness of Egypt’s non-banking financial markets.
The amendments build on Resolution No. (11) of 2014, which initially regulated the listing and trading of SPAC shares. The FRA’s new guidelines seek to attract both local and foreign investments by providing a structured framework for SPACs, thus bolstering the role of the non-banking financial sector in Egypt’s economy.
What are Special Purpose Acquisition Companies (SPACs)?
SPACs are venture capital entities established for the sole purpose of acquiring other companies across various sectors. These entities raise capital through private subscriptions on the stock market, specifically targeting qualified investors and financial institutions. SPACs must complete an acquisition within two years of their temporary listing, in compliance with stringent controls and conditions.
Key Regulatory Changes
Upon obtaining a license, blank cheque companies (SPAC companies) in Egypt are now required to:
- List Shares Promptly: Submit a request to list shares on the stock exchange within one month of licensing. Failure to do so renders the license null and void.
- Increase Capital: Raise their capital to a minimum of 100 million Egyptian pounds within three months of listing. Initially, the issued and paid-up capital should not be less than 10 million pounds.
Information Memorandum
SPACs must submit a detailed information memorandum with their registration application. This document should cover:
- General data about the company
- Experience of founders and board members
- Targeted sectors and investment controls
- Investment plans for acquisitions
- Acquisition methods (cash, credit balances, or share exchanges)
- Investment risks and redemption controls
- Management of capital and avoidance of conflicts of interest
The memorandum must also inform investors that subscribing to increased shares implies acceptance of trading at no more than the nominal value until the disclosure report or financial statements are published.
Shareholder and Trading Regulations
- Minimum Shareholders: The company must have at least 50 shareholders after subscription, with at least 5% of shares freely tradable.
- Restricted Trading: Trading is initially limited to financial institutions and qualified investors. Full trading rights are granted once the company meets all listing conditions and publishes a disclosure report or 12-month financial statements.
Acquisition Process and Founder Retention
SPACs must present a draft acquisition resolution to the extraordinary general assembly within six months of listing. Founders and related parties are prohibited from voting on this resolution. The acquisition must be executed within two years, with options including:
- 100% acquisition followed by merger
- Acquiring a controlling or absolute majority of capital or voting rights
Founders must retain 100% of their shares until the profitability condition is met and maintained for two fiscal years.
Delisting and Liquidation
Should a SPAC fail to meet conditions for listing, including shareholder numbers and capital requirements, its temporary listing will be voided, necessitating liquidation unless justified otherwise to the FRA. In cases of compulsory delisting, the company must buy back freely traded shares at a fair value determined by an independent advisor.
Special Provisions
- Recovery Account: The company may establish a “recovery account” to purchase shares from shareholders affected by acquisition activities, funded by the company.
- Uncompleted Acquisitions: If an acquisition is not completed within two years, the company must reduce its capital or re-offer shares to other qualified investors with general assembly approval.
These revamped regulations are designed to streamline the SPAC process, offering a robust framework that balances investor protection with market growth, thereby fostering a more dynamic and attractive investment environment in Egypt.
