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Tuesday, 2 November 2021

The SPACs cometh

SPACs could be landing in Egypt soon, after the Financial Regulatory Authority’s (FRA) board greenlit a proposal to allow the establishment of blank-check firms here, the regulatory body announced in a statement yesterday. The proposal, which was put forward by EGX Chairman Mohamed Farid in September, would for the first time allow investors to set up companies created with the sole purpose of raising capital through an IPO to acquire or merge with another company.

The specific rules set to govern Egyptian SPACs are still TBD: SPACs will be subject to the same regulations as venture capital firms under the Capital Markets Act, with listing and delisting rules still to be decided by the FRA, FRA head Mohamed Omran said in the statement.

Digital and tech startups will be able to use SPACs to access investment under the new rules, helping boost Egypt’s investment climate and support SMEs, Omran said.

What’s with the sudden hunger for EGYSPACs? Swvl’s decision earlier this year to IPO on the Nasdaq via a blank check firm seems to have focused some minds in policymaking circles. The idea of launching local SPACs seems to have been hatched during a recent meeting between top government officials and a number of local startups in the wake of Swvl’s announcement. The message, we think, is clear: If you’re thinking of going for a foreign SPAC, we’d really prefer it if you went the EGX route instead.

How exactly will SPACs work in Egypt? SPACS first get institutional investors to buy in before floating on a stock exchange. The SPAC then places the funds raised into an interest-bearing trust account for a maximum of two years while it looks for a company to acquire or merge with. In the event that the SPAC fails to acquire another company in time, it is liquidated and the funds are given back to investors along with returns from the fixed-income investments.

What does this mean for the EGX? Allowing SPACs could offer startups a chance to list on the EGX early in their development, raising the EGX’s market cap and boosting the number of IPOs in Egypt, according to Farid. SPACs would give SMEs currently limited to the small-cap Nilex the chance to access investment through the main bourse. Regulators have been trying to persuade more companies to list on the EGX, most recently amending listing rules to make it easier for larger firms to go public.

The popularity of SPACs has picked up in MENA: Dubai-based Shuaa Capital plans to establish three SPACs worth USD 200 mn. Anghami was also intending to list in the Nasdaq via a merger with a blank-check firm, but has recently gone quiet about where those plans stand. Anghami has a deadline of 11 November to pull the trigger on the transaction with Vista Media Acquisition Company — and extension it announced in August.

SPACs are already a big thing in western markets. We have a full explainer on why — and how — they work here.

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