FRA takes steps towards boosting SPAC activity: The Financial Regulatory Authority (FRA) introduced amendments to the regulations governing SPACs, in addition to new rules for mergers as well as delisting procedures.

A REGULATORY MAKEOVER FOR SPACS-

New SPAC regulations: The FRA revised regulations related to SPACs, allowing them to merge, swap shares, or acquire credit balances of their target company. Once an acquisition is completed, the SPAC shares will be tradable at fair value, provided that the listing requirements are met.

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Post acquisition: The SPAC can start trading after publishing its semi-annual financial report six months after the acquisition is completed. The report must reflect a net income of no less than 5% and a shareholders’ equity above its paid-up capital. Previously, a SPAC had to wait until submitting its annual financial report two years post-acquisition before its shares could be publicly traded.

The rationale: The move aims to diversify the acquisition options for a SPAC and ensure transparency and fairness when determining its share price.

Opening the trading floor for all: The regulatory changes open SPAC trading to retail investors — SPAC trading was previously open only to qualified investors.

Relaxing the rules: The amendments relax previous regulations that require founders and board members to hold on to their combined 51% share in the SPAC following a capital increase or acquisition. They also allow investors who subscribe to the capital increase to freely trade their new shares without restrictions.

The fine print: Following a merger — if the SPAC merged with a listed company — some 51% of the shares of subscribing shareholders will be frozen for no less than 12 months if the acquired company’s fair value exceeds the listed company’s market value to ensure stability.

The second update to SPAC rules in less than a year: The FRA updated its rules governing the listing and delisting of the acquisition vehicles on the Egyptian bourse last July. Under the regulations, SPACs must apply to list on the EGX within one month of obtaining their license from the FRA, or it will be considered invalid. They need a minimum issued and paid-up capital of EGP 10 mn which must be increased to EGP 100 mn within three months of listing on the EGX.

Remember: Egypt’s first SPAC — Impact investor Catalyst Partners’ Catalyst Partners Middle East (CPME) — made its EGX debut last November.

What’s a SPAC again? A special purpose acquisition company is 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.

FRESH RULES FOR MERGERS-

If the merger of an EGX-listed company results in a capital increase that causes the company to fail to meet listing requirements, it must rectify the situation within six months to maintain compliance.

For further control and stability post-merger, investors subscribing to the capital increase of a listed company must hold onto their newly acquired shares for at least one fiscal year under the new regulation, until the company publishes audited financial statements demonstrating compliance with profitability and equity requirements.

STRONGER SAFEGUARDS FOR MINORITY SHAREHOLDERS IN DELISTINGS-

No monopoly over delisting decisions: The FRA amended regulations governing the voluntary delisting of shares to bolster minority shareholder rights and align local regulations with global best practices. Under the new rules, delisting decisions must now be approved by 75% of the general assembly, provided that the majority of minority shareholders (those unaffiliated with the majority owner) also approve the delisting. The FRA emphasized that the new requirements ensure equal treatment of all stakeholders, preventing controlling shareholders from unilaterally forcing a delisting.

Shareholders get the final say on delistings: Another key regulatory change the FRA introduced revokes the ability of a company’s board to unilaterally decide to delist shares in cases where 75% of a company’s shares were acquired through a tender offer. Instead, the decision must be made by the general assembly. The FRA argues that this amendment balances power between controlling and minority shareholders, ensuring greater fairness in corporate governance.

Buybacks now have new mechanisms: The new delisting regulations require that minority shareholders looking to exit be offered the highest valuation between three key benchmarks:

  • The highest closing price of the stock during the month preceding the board’s decision to call the assembly;
  • The average closing price of the company’s shares over the three months prior to the board’s decision;
  • A fair value assessment conducted by an independent financial advisor approved by the FRA.

The fair value study must be published at least 15 days before the shareholder vote, ensuring transparency and giving minority investors ample time to assess their options.

The FRA also streamlined the delisting process, requiring companies to submit delisting documents to the EGX within five business days of the assembly’s decision. The delisting itself must be fully completed within 20 business days after all required documents are submitted to the exchange.

New oversight for employee incentive and reward programs: The regulations also transferred regulatory oversight of employee incentive programs to the FRA from the EGX. Moving forward, companies must submit disclosure reports to the FRA within two business days before calling a general assembly to approve the incentive plan.

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