A view of a avenue in Abu Dhabi, United Arab Emirates
Valery Sharifulin | TASS | Getty Images
DUBAI, United Arab Emirates — Authorities in the United Arab Emirates have authorised the first framework for SPACs — particular objective acquisition firms — in the Gulf region, in an effort to draw new funding, despite a fall in popularity for the controversial funding tool.
“The Securities and Commodities Authority has authorised the GCC’s first Special Purchase Acquisition Company (SPAC) regulatory framework, the newest initiative by @ADX_AE and @AbuDhabiDED to assist world traders to capitalise on rising alternatives in the UAE,” a tweet posted on the Abu Dhabi Media Office twitter web page learn on Monday, tagging the Abu Dhabi Securities Exchange and the UAE capital’s Department of Economic Development.
A SPAC is basically a faster method for an organization to go public. The SPAC has no precise enterprise operations and exists solely to boost cash by means of an IPO, in order to later merge with or purchase a non-public firm.
They’re usually referred to as “clean verify” firms, and the final two years noticed an explosion in funding and use of SPACs — 2020 noticed 247 SPACs created, and the first quarter of 2021 alone noticed 295 of the particular autos created with $96 billion raised, in keeping with the Harvard Business Review.
The UAE’s foray into this space is an indication of the nation pushing forward to additional diversify its financial system and compete with bigger markets, stated Karim Jetha, chief funding officer at Longdean Capital, an rising markets asset administration agency primarily based in Dubai.
“This announcement supplies additional proof of the Abu Dhabi authorities’s continued dedication to develop and diversify its capital markets,” Jetha informed CNBC.
He famous that Abu Dhabi’s inventory market has been “traditionally dominated by banks, actual property and telecoms firms,” however that final yr noticed IPOs in extra fields together with drilling, fertilizer and satellite tv for pc sectors, “including extra breadth.”
“However, a few of the quickest rising firms in Abu Dhabi are in the shopper and expertise sectors and these are underrepresented on the inventory market,” Jetha added. “The determination to permit SPACs ought to improve the potential of those latter-stage development firms to entry financing and produce about additional diversification.”
The determination comes in the wake of Dubai saying public listings of government-related firms final yr, and Abu Dhabi-listed shares hitting document highs. Abu Dhabi was amongst the finest performing indexes globally in 2021, gaining 68.2%.
And UAE-based music streaming service Anghami final yr turned the first Arab firm to record on the Nasdaq in New York, one thing it did by merging with a SPAC referred to as Vistas Media Acquisition Company Inc., which raised $100 million when in went public in August 2021.
SPACs include a good quantity of danger, although. Many of the SPACs created in the final two years didn’t find yourself making offers, so traders misplaced cash, and people who did usually carried out poorly on the markets. Critics of the software say it might probably dilute the high quality of firms on an trade and encourage hypothesis.
Stock efficiency hasn’t been nice for SPACs in the U.S. — the proprietary CNBC SPAC 50 index, which tracks the 50 largest U.S.-based pre-merger blank-check offers by market cap, is down greater than 16% from this time final yr. And at a time when rates of interest are set to rise and the value of capital will increase, traders are prone to transfer towards firms that generate money movement.
Still, the transfer is a vital one, and the timing means the UAE has had time to study from different markets’ dealings with SPACs, stated Tala Al Jabri, a enterprise capital investor energetic in Saudi Arabia and the UAE.
The UAE “has had the alternative to take a seat again and observe how SPACs have performed out in different markets, and can be capable of attempt to rectify and mitigate a few of these dangers. Surely, it is a daring transfer however there’s but to be an rising market that has proven its capital markets are sport for such funding alternatives,” she stated.
“Having a SPAC framework is a pure subsequent step to take in creating its capital market,” Al Jabri stated. “I count on different GCC [Gulf Cooperation Council] international locations will observe to enact frameworks.”
Something that might work in the UAE’s favor is “the world nature of its startup ecosystem,” she added, “in addition to elevated scrutiny and regulation of SPACs in developed markets, particularly the U.S.”