Raising money for entering into M&A deals: Rs10m minimum paid-up capital fixed for PLCs to work as SPAC

ISLAMABAD: The Federal Board of Revenue (FBR) has fixed a minimum paid-up capital of Rs10 million for public limited companies (PLCs) to work as a Special Purpose Acquisition Company (SPAC) to raise money through public offering for entering into merger or acquisition transactions.

The SECP has issued SRO 1214 (I)/2021 to amend the Public Offering Regulations, 2017, here on Monday.

According to the SECP's new regulations, no person shall commence business as a the SPAC unless, it is registered as a public limited company having principle line of business of the SPAC, having a paid-up capital of not less than 10 million rupees, and shall not carry out any commercial business other than the business of the SPAC and its promoters, sponsors, directors, and chief executive officer fulfil the "Fit and Proper criteria" as specified in the Ninth Schedule.

The "Special Purpose Acquisition Company" or "SPAC" means a company formed and registered under the Companies Act, 2017, having sole principal line of business to raise money through public offering for entering into merger or acquisition transactions, the SECP said.

Under the new regulations, the SPAC shall be responsible to raise and utilise funds for the sole purpose of merger or acquisition transaction and complete the transaction within permitted timeframe and open an escrow account and maintain custodial arrangements for escrow account at all times as required under these regulations.

The SPAC shall be responsible to act in the best interest of the investors and to ensure that merger transactions shall be structured in such a manner to avoid any conflict of interest and ensure that at least 15 percent shareholding of merged entity (post-merger) are held by the sponsors for a period of at least one year from the date of merger.

The SPAC can raise funds through issuance of equity securities and/or warrants either by way of, (i) initial public offer (IPO); or (ii) private placements.

The SPAC shall raise at least Rs200 million to undertake a merger or acquisition transaction.

The offering document/prospectus should clearly provide the justification that the funds raised are sufficient enough to enable the SPAC to have a core business with sufficient size and scale relative to the industry in which the business operates.

The SPAC must complete the merger or acquisition transaction within the permitted time frame of 36 months from the date of listing of the SPAC on the exchange: Provided that the commission may, upon request by the SPAC, after reasons to be recorded in writing, extend the permitted time by six months' subject to terms and conditions as deem appropriate by Commission, the SECP added.

Copyright Business Recorder, 2021