The Securities and Exchange Commission of Pakistan (SECP) has amended the Public Offering Regulations, 2017 to introduce a regulatory framework for Special Purpose Acquisition Companies (SPAC).
The introduction of SPAC in Pakistan’s market is expected to boost up activities in the primary market, encourage new listings and help companies to tap capital for large scale merger/acquisition transactions. It would 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 SPAC is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of merger/acquisition transactions. The concept of SPAC prevails in many developed countries like USA, Canada, and Malaysia. Under the proposed regulatory framework, SPAC shall be a public limited company having a paid-up capital of not less than PKR 10 million. The SPACs promoters/sponsors, directors and CEO shall meet the fit and proper criteria.
To safeguard the interests of shareholders, SPAC is required to keep 90% of the funds raised through IPO in an escrow account managed by the custodian. Those 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 shall be approved by the shareholders by way of special resolution.
Upon merger, the merged entity shall be listed and shareholder/(s) disapproving the merger or acquisition are entitled for refund of money out of escrow account in line with these regulations. SPAC investors may exercise a redemption right if they dissent from SPAC’s proposed merger/acquisition transaction.