Abu Dhabi proposes region’s first Spac regulatory framework

The decision is aimed at making the UAE's capital an attractive destination for investment

An investor monitors a screen displaying stock information at the Abu Dhabi Securities Exchange June 25, 2014. The spectacular rise and fall of Arabtec, Dubai's most heavily traded stock, teaches hard lessons about how risky the region remains for investors even as its rapid economic growth lures billions of dollars in fresh funds from abroad. Wild trading by local retail investors who dominate activity, plus weak corporate disclosure and a hands-off approach by regulators, can make a toxic mix, and on occasion destabilise entire markets.  REUTERS/Stringer  (UNITED ARAB EMIRATES - Tags: BUSINESS) - GM1EA6P1SB001
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The Abu Dhabi Securities Exchange and Abu Dhabi’s Department of Economic Development have submitted a proposal to the Securities and Commodities Authority for a special purpose acquisition company (Spac) regulatory framework, the first of its kind in the Middle East and North Africa.

The move is part of the emirate's strategy to develop its capital markets and bring its products and services in line with those of global peers.

A Spac, or blank-cheque company, is an entity with no commercial operations and trades without business fundamentals. It is formed with the intention of raising funds through an initial public offering and seeks to acquire existing companies.

After it is reviewed by the SCA, the proposal will require formal regulatory approval, the ADX said on Tuesday. If approved, it will become the first Spac framework in the Arab world.

The move is expected to boost the regions' second-largest stock market by allow blank-cheque companies to publicly list and allowing sponsors outside of the UAE to apply for approval to list their Spacs on the local exchange and, in turn, enabling initial public offerings on the ADX.

The stock market has a market capitalisation of more than Dh1.5 trillion ($415bn) as of Tuesday and is up more than 58 per cent this year on the back of IPOs, rising foreign investment and higher oil prices.

“The introduction of a Spac regulatory framework will be an important step for Abu Dhabi, providing growing companies with yet another new avenue of funding,” said Mohamed Al Hammadi, chairman of Added.

“Added’s participation in the creation of the Spac regulation reflects our commitment to support the growth of Abu Dhabi’s economy and make the emirate an attractive destination for international capital.”

Spacs were first created in the 1990s but have registered a 10-fold rise in investment inflows since 2019, with globally recognised investors such as the SoftBank Group setting up their own entities to invest in technology start-ups, cementing their popularity.

Lucid Motors, which is backed by Saudi Arabia’s Public Investment Fund, announced that it would go public by merging with Churchill Capital IV Corporation Spac while music-streaming service Anghami said in March that it would list on the Nasdaq through a merger with Vistas Media Acquisition Company.

Mubadala Capital, the asset management arm of Mubadala Investment Company, unveiled a $200 million blank-cheque company IPO in August, which will seek acquisitions in media and technology sectors.

Spacs are usually formed by investors or sponsors. They could be private equity funds or investors specialising in a particular industry, who intend to pursue deals in that area of business.

Investors in Spac IPOs can be other funds, high-net-worth individuals or the general public.

The creation of a market for Spacs reflects Abu Dhabi’s “commitment to create a dynamic capital market environment”, said Sameh Al Qubaisi, executive director of the executive affairs office at Added.

Targeted companies in the UAE and beyond will also enjoy many advantages through a Spac merger
Sameh Al Qubaisi, official with the Abu Dhabi Department of Economic Development

“Targeted companies in the UAE and beyond will also enjoy many advantages through a Spac merger, from faster execution and lower costs of marketing to upfront price discovery and access to the Spac’s sponsor’s operational expertise,” he said.

The ADX and Added worked with legal and investment specialists to come up with the proposed Spac regulations. They assessed the regulatory landscape and benchmarked US and international Spac regulations, the stock exchange said.

Music streaming service Anghami said in March that it would list on the Nasdaq through a merger with Vistas Media Acquisition Company. Photo: Natalie Naccache for The National

“The introduction of Spac regulations will further enhance our efforts to provide market participants with the widest range of investment vehicles and tools, including the recent introduction of a derivatives market,” said Saeed Al Dhaheri, chief executive of ADX.

“Over the past several months, the exchange has undertaken rigorous Spac simulations, operational readiness tests and the preparation of educational material for sponsors and investors. ADX is now fully prepared to field inquiries from sponsors and investors ahead of the proposal’s expected approval.”

Updated: November 09, 2021, 12:58 PM