Navigating Egypt’s SPAC Landscape: A Regulatory Roadmap for Acquisition-Driven Growth

The Financial Regulatory Authority (FRA) has received an application to establish the first Special Purpose Acquisition Company (SPAC) in Egypt, following the issuance of the FRA's Board of Directors Resolutions No. 140 and 148 of 2024. These resolutions aim to enhance the rules for listing and delisting securities on the Egyptian Stock Exchange (EGX) and to regulate the process of listing and trading SPAC shares. This move underscores the FRA's commitment to improving the efficiency and competitiveness of non-banking financial markets, particularly the capital market, by creating new investment opportunities that attract both local and foreign investors.

Definition and Purpose

A Special Purpose Acquisition Company (SPAC), as defined by Decree No. 140 of 2024, is a venture capital company established solely for acquiring other companies across various economic sectors. SPACs obtain the necessary financing for acquisitions by offering capital increases through private subscriptions on the stock market, limited to qualified investors and financial institutions. These companies are required to acquire target companies within two years of their temporary listing on the EGX, adhering to specific controls and requirements.

Since 2021, the FRA has allowed the establishment of SPACs, which must achieve their acquisition objectives within two years by offering three alternatives:

1. A 100% acquisition of capital or voting rights followed by a merger.
2. Acquisition of a controlling percentage of capital or voting rights exceeding the necessary merger decision threshold.
3. Acquisition of a majority of capital or voting rights.

Registration Conditions

Resolution No. 148 of 2024 outlines the following conditions for SPAC registration on the EGX:

1. Capital Requirements: Minimum issued and paid-up capital: EGP 10 million. Mandatory capital increase to EGP 100 million within three months of listing.
2. Private Subscription: Capital increase shares must be offered to qualified investors or financial institutions under the responsibility of the executing brokerage company. The information memorandum must include company data, founder and board experiences, target sectors, investment plans, risks, and conflict-of-interest avoidance measures.
3. Shareholder Requirements: Minimum of 50 shareholders post-subscription. At least 5% of total shares must be freely traded.
4. Funds Management: Subscription proceeds must be held in an Egyptian bank and used exclusively for acquisitions.
5. Trading Restrictions: Trading limited to financial institutions and qualified investors until general trading requirements are met.
6. Acquisition Plan Approval: The draft acquisition plan must be presented to the extraordinary general assembly within six months of listing. Founders and related persons cannot vote on the acquisition resolution. Shareholders objecting to the acquisition may exit the company within 30 days of the resolution vote.
7. Acquisition Execution: Acquisitions must occur within two years of listing, with either a 100% acquisition or a majority in capital or voting rights, followed by a merger or retention as subsidiaries as decided by the extraordinary general assembly.

Post-Acquisition Procedures

Post-acquisition, the company must publish a disclosure report as per Article 138 of the Executive Regulations of Law No. 159 of 1981, detailing the acquisition and future operations. Founders must maintain their share percentage until financial statements are approved for the year profitability is achieved, with additional conditions on capital increases.

If delisted from the EGX, the company must liquidate unless the FRA approves a valid justification. Temporary registration will be nullified if conditions regarding shareholder numbers, freely traded shares, and capital retention are not met within three months, extendable by FRA approval.

Steps for General Trading

To allow general trading of SPAC shares:

1. The legal representative must submit a trading application to the EGX.
2. The company must meet all listing conditions.
3. A disclosure report and fair value study by an independent financial advisor must be published.

Incorporation Requirements

To incorporate a SPAC, the following documents are required:

1. Founders’ agent request.
2. Three copies of the primary contract and articles of association.
3. Security inquiry form for foreign founders or board members.
4. Proof of incorporation fee payment.
5. Proof of issuance fee payment.
6. Auditor's appointment acceptance.
7. Bank deposit certificate for paid-up capital.
8. Incorporation application form.
9. Criminal record for board members.

Compliance Dates

Key compliance dates include:

1. Acquisition within two years of temporary listing.
2. Capital increase to EGP 100 million within three months.
3. Acquisition plan presentation within six months.
4. Founders' share retention for 24 months until profitability is achieved.

The new SPAC regulations provide a structured framework to facilitate mergers and acquisitions, enhancing the Egyptian capital market's attractiveness.

For inquiries about incorporating SPACs, contact Eldib & Co., experts in incorporation and capital markets.

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