Back to the complete issue
Monday, 22 November 2021

SPAC me, the regs are out

We’re one step closer to Egyptian SPACs after the Financial Regulatory Authority (FRA) yesterday issued the rules and regulations (pdf) for investors looking to establish local blank-check firms. Announced (pdf) by the regulator yesterday, the framework sets out the capital requirements, shareholder structure and regulatory responsibilities SPAC founders will need to comply with. EGX listing and delisting rules have also been amended (pdf) to make way for SPACs to hit the EGX.

But crucially: The FRA has not yet said when it will allow the first SPACs to go ahead.

And SPAC stands for…? Special purpose acquisition company. They’re a type of shell company used by investors to acquire firms. SPACs raise money from the public in an IPO and then use the proceeds to merge with or acquire an appropriate company. Check out our explainer for more on how SPACs work.

Okay, so how do we do this? Investors that want to set up a SPAC first need to obtain a venture capital license. A board of directors is appointed next, with a chairman who complies with the FRA’s regulations and guidelines for private equity firms. The blank-check firm would then be publicly listed on the EGX and have one month in which to raise capital from investors via a share sale. The funds raised would be placed into an interest-bearing bank account for a maximum of two years while it looks for a company to acquire or merge with.

Capital requirements: A SPAC will need to have minimum initial capital on hand of EGP 10 mn — those are the table stakes to play. The regs then give the firms one month from registering with the regulator to issue shares and begin raising capital. The SPAC must have at least EGP 100 mn in capital to complete an acquisition or merger — and at least 80% of the SPAC’s capital must be used to acquire a target company.

Regulation light until they pull the trigger: Until they merge with a target company, SPACs will be exempt from some of the measures imposed on listed companies, including requirements to submit financial statements.

Rules on share allocation — and a lockup period for sponsors: At least 25% of a SPAC’s shares (pre-merger) must be held by institutional investors, while sponsors need to commit at least EGP 10 mn in capital and hold at least 5% of the company’s equity post fundraising. Sponsors must also hold onto their shares for two years or until the SPAC pulls the trigger on an acquisition, whichever comes first. Fully 50% of shares are to be earmarked for individual investors.

And then, it’s just your regular SPAC: The SPAC places the funds raised into an interest-bearing account for a maximum of two years while it looks for a company to acquire or merge with. The proposed acquisition goes to a general assembly meeting, where shareholders are given the option of exiting the SPAC and drawing back their funds. Shareholders objecting to the transaction have 30 days to exit.

What if we decide we don’t want to SPAC after all? If the SPAC fails to close an acquisition within the two-year window, it is liquidated and the funds are returned to investors along with any gains made while they were deposited.


Background: The regulations come a few weeks after the proposal spearheaded by EGX boss Mohamed Farid received the greenlight from the FRA. The proposal was partly driven by an increased interest in SPACs in the MENA region, following Swvl’s move to merge with blank-check firm US Queen’s Gambit Growth Capital and list on the Nasdaq, as well as Anghami’s plans to follow suit (potentially next month).

Interest in EGYSPACs has been around since at least 2Q: At least two companies have been eyeing SPACs in Egypt, one Egyptian, and the other international with stakes in several Egyptian companies, Zulficar & Partners founding partner Anwar Zeidan previously told us. These companies have been in talks with the FRA since it first greenlit Farid’s proposal.

GLOBALLY- There may still be life in the international SPAC market, which fell off a cliff in April following its unprecedented stimulus-fuelled boom in late 2020, the Financial Times says in this long read out this morning. Despite the party coming to a dramatic end, sponsors are now hoping that a recent spate of SPAC IPOs could be signs of a maturing market, one that turns the previously novel shell companies into a cornerstone of the capital markets.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.