On January 24, 2022, the Abu Dhabi Government Media Office announced that the Securities and Commodities Authorities (“SCA”) granted its regulatory approval for the first Special Purpose Acquisition Company (“SPAC”) in the UAE and the region.

What is SPAC?

A SPAC, also called a blank check company, is an investment vehicle designed to raise funds through an Initial Public Offering (“IPO”) on a regulated exchange that endeavors to use the proceeds of such IPO to acquire or merge with an existing non-public company. In other words, a SPAC could be seen as a less time-consuming alternative to traditional IPOs. Generally, a SPAC is formed by an experienced management team or a sponsor with nominal invested capital, typically translating into a 20% interest in the SPAC. The rest is offered in an IPO to public shareholders. Once formed, the SPAC generally has two years to complete a merger or acquisition or otherwise face liquidation. If the transaction is completed, the target can become a public entity in as little as 3 months.

SPAC framework in the UAE

The SPAC regulatory framework was developed by the Abu Dhabi Securities Exchange (“ADX”) and Abu Dhabi’s Department of Economic Development (“DED”), in conjunction with the SCA and legal and investment specialists. Sponsors will be required to raise a minimum of AED 100 million (approx. USD 27 million) in the IPO and units sold will comprise warrants that give investors and sponsors the right to convert them into shares. To protect investors, once the IPO is complete, a SPAC must ensure that 90% of proceeds are placed in a non-interest-bearing account[1].

Largely inspired by top-notch international SPAC regulations and adapted to the region with various incentives and an innovative share structure, the SPAC solid framework presents international investors with more growth opportunities in the UAE and the region as well as an alternative access to the stock market.

The UAE, an international business hub

The UAE has been a major regional player for the last couple of decades and have attracted numerous investments from all around the world. However, with most countries stagnating or falling behind in the wake of the pandemic, the UAE is thriving and establishing itself as an international business hub, rather than a regional one only. The UAE regulators sanctioning SPACs is only the tip of the iceberg after a plethora of law amendments that has made the UAE an ideal international business platform. For context, in the United States in 2020, 247 SPACs were created with $80 billion invested, and in just the first quarter of 2021, a record $96 billion was raised from 295 newly formed SPACs[2]. The UAE does not seem ill-equipped to compete with such numbers, especially with the favorable tax infrastructure and the solid SPAC framework now in place.

[1] Abu Dhabi Government Media Office article. https://www.mediaoffice.abudhabi/en/economy/abu-dhabi-securities-exchange-welcomes-approval-of-region-first-spac-regulatory-framework/

[2] Harvard Business Review. “SPACS: What you need to know, October 16, 2021.