Legal Update: Egypt Allows establishment of SPACs to facilitate acquisitions

On 31 October 2021, the board of Financial Regulatory Authority (“FRA”) issued Decree number 163 of 2021, which approved that the venture capital companies may be licensed to conduct establishment of Special Purposes Acquisition Companies (“SPACs”). The said decree indicates that the licensing requirements shall be determined through executive regulations to be issued by FRA.

On 17 November 2021, the board of the FRA issued Decree number 171 of 2021, which regulates the activity of SPACs. The new decree provides details related to the establishment, structure and ownership of SPACs, the rights and obligations of SPACs and their investors as well as the mechanism of raising capital and acquiring target companies.

SPACs are venture capital companies in the form of Joint Stock Companies with a minimum issued and paid up capital of EGP 10,000,000. Following establishment, the SPAC must increase its capital through a public and/or private offering based on the investment plan relating to the acquisition of the target company/companies. The SPAC shares shall be listed with the Egyptian Stock Exchange and SPACs must execute the subscription of their shares within one month from registration with the FRA. The share capital of SPACs must not be less than EGP 100,000,000 after their capital increase through private and/or public offering. The SPAC capital will be invested in low-risk financial instruments that are convertible to cash upon request. The acquisition of the target company must take place within two years from the date of increasing the SPAC’s share capital. The proposed acquisition is presented to the SPAC General Assembly and shareholders are allowed to exit the SPAC and reclaim their funds if they object to the proposed transaction. If the acquisition does not take place within the two year period mentioned above, the SPAC will be obligated to return the funds to its investors, cancel its shares and enter into liquidation. After the completion of the transaction, the SPAC shall be converted from a company retaining the subscription proceeds to a company performing the activity of the acquired target company.