The Securities and Exchange Commission of Pakistan has amended the Public Offering Regulations, 2017, to introduce a regulatory framework for Special Purpose Acquisition Companies.
Its introduction in the Pakistani market is expected to boost activities in the primary market, encourage new listings, and help companies to tap capital for large-scale merger/acquisition transactions. It will also enable investors/public to co-invest with sophisticated, highly experienced managers and benefit from the appreciation in the share value of acquired units.
A Special Purpose Acquisition Company (SPAC) has no commercial operations, and is formed strictly to raise capital through an initial public offering for the purpose of merger/acquisition transactions. This prevails in many developed countries like the USA, Canada, and Malaysia.
Under the proposed regulatory framework, a SPAC will be a public limited company having a paid-up capital of not less than Rs. 10 million. The SPACs promoters/sponsors, directors, and CEO will meet the fit and proper criteria.
To safeguard the interests of shareholders, a SPAC is required to keep 90 percent of the funds raised through initial public offerings (IPOs) in an escrow account managed by the custodian. These funds can only be utilized for merger or acquisition transactions within a permitted time period of three years (36 months). The escrow funds can be invested in permitted investments. Each merger or acquisition transaction will be approved by the shareholders via a special resolution.
Upon being merged, the merged entity will be listed, and shareholders (s) disapproving of the merger or acquisition are entitled to a refund from the escrow account in line with these regulations.
SPAC investors may exercise a redemption right if they dissent from the SPAC’s proposed merger/acquisition transaction.
The amendments to the Public Offering Regulations, 2017 related to SPACs can be accessed on the Securities and Exchange Commission of Pakistan’s (SECP) webpage.