The Securities and Exchange Commission of Pakistan (SECP) is going to introduce the concept of a special purpose acquisition company (SPAC) in order to facilitate raising capital for acquisitions or mergers.
SPACs, a new concept for the Pakistani capital market, are prevalent in many countries, including the USA, Canada, Malaysia, and others. A company comprises a group of persons/professionals, under the SPAC structure that raise funds from the general public and then those funds are consumed for the purpose of merger or acquisition transaction within a permitted time frame.
Moreover, a SPAC’s life begins with its initial formation (in the form of a company), followed by its IPO, its search for a target, stakeholder approval for merger/acquisition, and finally, the close of an acquisition or else return of the SPAC’s proceeds back to its investors.
Under the proposed regulatory framework, SPAC shall be a company or body corporate registered with the SECP, which shall be formed by a group of persons meeting the fit and proper criteria.
The paid-up capital requirement for SPAC shall be Rs 1 million and it shall raise at least Rs 200 million through a public offering.
The acquisition has to be completed within the allowable time frame of 2 years and at least 90% of the funds raised shall be kept in an escrow account managed by a custodian. The proceeds in the escrow account may be invested in permitted investments.
Each acquisition transaction shall be approved by the shareholders by way of special resolution. Upon merger, the merged entity shall be automatically listed and in case of acquisition, the SPAC shall list the acquired entity.
Shareholder/(s) disapproving the merger or acquisition is authorized to a refund of their money out of the Escrow account as per the specified procedure.
The aforementioned amendments are likely to provide a more beneficial regulatory environment for capital formation in the economy through the primary market.