So, what is all about this buzzword SPAC the “shell companies” or the “blank check” companies that have gathered so much tinkle in recent times? What is so new about these, is how SPACs and their Growing Importance in UAE. We will discuss everything in this article.
What to know about SPACs?
Let’s start with the basic question what is this SPAC. “SPAC’s” word in its original form stands for special purpose acquisition company also commonly referred to as blank check companies. These companies in their very basic avatars are created for transitioning a company from a private company to a publicly-traded company.
Certain market participants believe that, with a SPAC transaction, a private company can become a listed company with more certainty around pricing and more power over the terms of the contract than in the past.
Thus, in very layman’s terms SPACs, raise money and list shares on a stock exchange to merge with a private company.
How SPACs companies raising their worth all over the market places and SPACs in UAE
Though SPACs were there in one form or the other in the Market, however, this has spread like a wildfire in recent years. This can be testified that while in 2019 there were ~50+ SPACs with proceeds of ~10+ billion this raised nearly 40 times in 2021 in terms of proceeds it generated.
ADX the Abu Dhabi Securities Exchange is the first market region to familiarize comprehensive listing rules under the newly fashioned regulatory framework for SPACs issued by the UAE’s Securities and Commodities Authority (SCA).
Digging more into this the SPACs have no commercial valuation till it merges with a target company and their only asset is their IPO proceeds.
SPACs in UAE, the Assets/IPO proceeds of the SPAC are held in the escrow account till the merger is announced and proceeds are required to be used post Shareholder’s approvals.
What is De-Spac means in a Spac Process?
If no deal is secured within the timeframe (usually 18- 36 months) set the SPAC dissolves and funds from the Escrow accounts are returned to its shareholders. However, if the target is approved for merger and the deal is completed, the SPAC is turned into a publicly listed company through the process called DE-SPAC.
So, in essence, SPACS allows investors to connect with opportunities that would otherwise have only been available via the Private route. The Redeemability of invested capital through the SPAC redemption process also makes it attractive.
ADX offers investors the same power with access to value investing under its strongly regulated and tax-free umbrella along with a predictable business environment.
Future of SPAC sponsors companies
What the future hold for SPACS is very uncertain, however, there is an expectance of it becoming more professional, with reputed and time-proven sponsors. SPACs might become a default allocation for the institutional investors may be in a decade and may become a part of their portfolios.
ADX certainly has taken the right steps in this area while providing a listing of SPAC on its platform while maintaining regulatory requirements around compliance with regulatory rules and regulations around disclosures and governance.
1. How does a SPAC transaction work?
For the goal of acquiring an already running firm, a SPAC generates money through an initial public offering (IPO). An operational business may thereafter combine with (or be acquired by) the publicly traded SPAC and become a listed company.
2. What is the lockup period for SPAC?
A SPAC IPO often has a lock-up period that is longer than a regular IPO. But for target shareholders, the customary lock-up period is 180 days after closing.
3. Who are SPAC sponsors?
The fact that industry executives sponsored 76 per cent of the 2019 SPAC IPOs, up from 65 per cent in 2018 and 32 per cent in 2017, is a significant trend in the SPAC market. These executives often have experience working for public companies or have recently sold their previous companies and are looking for new chances.
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The rules of SPACs in UAE are modelled around global rules (US regulatory framework) to facilitate its effective operations. ADX’s advantage is in its hindsight to understand this opportunity and first release its SPAC listing rules.
As they always say that the early bird gets the worm.