ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has introduced the concept of Special Purpose Acquisition Company (SPAC), comprising a group of persons/professionals, to raise funds from the general public for utilising for merger or acquisition transaction within a permitted timeframe.

The SECP has issued draft amendments in the Public Offering Regulations, 2017, through an SRO 519(I)/2021.

Under the definition of the SPAC, it means a company registered with the commission under these regulations for the sole purpose of performing the function of merger or acquisition transactions.

According to the SECP, no person shall commence business as a SPAC, unless, it is registered with the Commission.

A person proposing to commence business as a SPAC shall be eligible for registration, if it is registered as a public company under the Companies Act, 2017, having a paid-up capital of not less than one million rupees.

Or, it is a body corporate; and its promoters or sponsors, directors, chief executive, officer or employee fulfil the Fit & Proper criteria as specified in the Ninth Schedule of these regulations.

An entity eligible for registration as SPAC may make an application to the commission for registration under these regulations on Form-I along with documents as specified in Annexure to Form-I of the Tenth Schedule.

The Commission, if it is satisfied after making such inquiry and after obtaining such information as may be considered necessary, may grant a certificate of registration to such person on such conditions as may be deemed necessary, the SECP said.

The obligations of the SPAC revealed that the SPAC shall list the acquired entity within a period of two years from the date of acquisition and would not utilise the amount of fund raised for any other purpose except merger or acquisition of companies.

It would open an escrow account and deposit therein at least 90 percent of the fund raised through issuance of securities, and secure and maintain custodial arrangements at all times over the monies in the escrow account until the termination of the escrow account.

It will be obliged to manage its assets in the interest of the investors in good faith and to the best of its ability and without gaining any undue advantage for itself or any of its related parties, associates or its officers and shall ensure that at least 30 percent of its shares are held by the sponsors for a period of at least three years from the date of listing.

It shall also prepare the draft prospectus as per the format and disclosures prescribed in Eleven Schedule of the Regulations.

The modes of fund raising revealed that a SPAC can raise funds through issuance of equity securities and warrants either by way of Initial Public Offer (IPO); or Private Placement.

The SPAC, which failed to complete merger or acquisition transaction within the permitted timeframe, shall notify the Commission and the concerned stock exchange of the same fact within seven days of the lapse of permitted time, the SECP said.

A SPAC shall raise at least Rs200 million to undertake a merger or acquisition transaction and which will enable the SPAC to have a core business with sufficient size and scale relative to the industry in which the business operates; and offer reasonable returns to investors based on the equity capital employed, relative to industry returns; and enable the SPAC to acquire management control, the SECP stated.

A SPAC offering securities to the public shall be listed on the stock exchange, the SECP stated.

The SECP has specified that the merger or acquisition by the SPAC should result in majority ownership and management control by the SPAC.

The SPAC must complete the merger or acquisition transaction within the permitted timeframe of 24 months from the date of listing on the exchange.

Copyright Business Recorder, 2021