Dubai's DFSA issues guidelines for listing of blank-cheque companies

Spacs will be required to ring-fence proceeds raised from investors and applicants have to appoint a sponsor company for the initial listing and subsequent acquisition of a target company

The DFSA, the regulator of Dubai International Financial Centre, has issued guidelines for Spacs looking to list in the emirate's financial hub. Sarah Dea / The National

The Dubai Financial Services Authority, the market regulator of the Dubai International Financial Centre, issued guidelines for listing special purpose acquisition companies that are designed to mitigate some of the risks associated with investment vehicles known as Spacs.

The regulator's approach may vary depending on the nature and complexity of a proposed Spac, also known as a blank-cheque company, and listing of each investment vehicle will be “considered on a case-by-case basis”, the DFSA said in a markets brief.

Spacs will be required to ring-fence proceeds raised from investors. Applicants will also be required to appoint a sponsor company for the initial listing and subsequent acquisition of a target company, the regulator said.

“We believe that Spacs should adequately ring-fence proceeds raised from investors,” the DFSA said. “This is to protect investors from misappropriation of funds or excessive running costs being incurred by the Spac’s management.”

Spacs may appoint independent third parties to protect proceeds raised from investors and the regulator may consider imposing “further safeguards on how the Spacs proceeds may be invested prior to any use”, it said.

A Spac is a vehicle with no commercial operations that is formed with the intention of raising funds through an initial public offering and then acquiring an existing company. Spacs have lighter disclosure requirements than IPOs and have been increasingly used over the past 18 months to take fast-growing companies public quickly.

Globally, 88 Spacs raised $16 billion from investors and listed on different exchanges in the third quarter of this year alone. It is a 38 per cent rise in volume from the second quarter of 2021, according to data compiled by PwC.

About 60 Spacs announced mergers with existing companies during the three-month period to the end of September, down about 20 per cent from the record number of merger announcements in the first quarter.

“We think Spac mergers could remain a pivotal force in 2022,” PwC said in a report. “There is nearly $120bn in cash on the sidelines in Spacs that have yet to announce a merger.”

Spacs are increasingly becoming popular in the Middle East. In July, Dubai-based investment bank Shuaa Capital said it plans to set up three Spacs, with capital of $200 million.

Earlier this year, Lucid Motors, which is backed by Saudi Arabia's Public Investment Fund, listed its shares by merging with Churchill Capital IV Corporation Spac. The company has a market value of $86.5bn as of the close of trading on Wednesday. Meanwhile music-streaming service Anghami said 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 $200m blank-cheque company IPO in August, which will seek acquisitions in media and technology sectors.

Earlier this month, the Abu Dhabi Securities Exchange and Abu Dhabi’s Department of Economic Development also submitted a proposal to the Securities and Commodities Authority for a Spac regulatory framework, the first of its kind in the Middle East and North Africa.

Spacs usually have to find and acquire a target company within two years of the date of their prospectus. However, the DFSA said it “may consider permitting a Spac’s operational life to be extended by another 12 months, subject to shareholder approval”.

“At the end of a Spac’s operational life, if a Spac has not managed to complete an acquisition, ring-fenced proceeds should be returned to shareholders,” the DFSA said.

Spacs regulated by the DFSA would be expected to provide shareholders with the “right to redeem their shares at a predetermined price”.

“There may be circumstances where we may find it necessary to restrict the offer and trading in the shares to professional clients only,” the regulator said.