UAE approves first SPAC framework in Gulf

DUBAI, United Arab Emirates — United Arab Emirates authorities have approved the Gulf’s first SPAC (Special Purpose Acquisition Company) framework to attract new investment, This is despite a decline in the popularity of the controversial funding vehicle.

“The Securities and Commodities Authority has approved the GCC’s first Special Purchase Acquisition Company (SPAC) regulatory framework, which was established by @ADX_AE and @AbuDhabiDED Supporting global investors to take advantage of emerging opportunities in the UAE,” a tweet posted on Monday on the Twitter page of the Abu Dhabi Media Office, marked the Abu Dhabi Stock Exchange and the UAE Capital’s Department of Economic Development.

A SPAC is essentially a faster way for a company to go public. SPACs have no actual business operations and only exist to raise money through an IPO for later mergers or acquisitions with private companies.

Often referred to as “blank check” companies, the funding and use of SPACs has exploded over the past two years – 247 SPACs were created in 2020 and 295 special vehicles were created in the first quarter of 2021 alone, Raised $96 billion, according to Harvard Business Review.

Karim Jetha, chief investment officer at Dubai-based emerging markets asset manager Longdean Capital, said the UAE’s foray into the space is a sign of the country’s further drive to diversify its economy and compete with larger markets.

“This announcement is further evidence of the Abu Dhabi government’s continued commitment to developing and diversifying its capital markets,” Jetta told CNBC.

He noted that Abu Dhabi’s stock market “has been historically dominated by banks, real estate and telecommunications companies,” but last year “added more breadth” with IPOs in more sectors such as drilling, fertilizers and the satellite industry.

“However, some of Abu Dhabi’s fastest-growing companies are in the consumer and technology sectors, and these companies are underrepresented in the stock market,” Jetha added. “The decision to allow SPACs should enhance the ability of these late-stage growth companies to access financing and bring about further diversification.”

The decision comes after Dubai announced a public listing of government-linked companies last year and Abu Dhabi-listed stocks hit record highs. Abu Dhabi is one of the world’s best-performing indices in 2021, up 68.2%.

Last year, UAE-based music streaming service Anghami became the first Arab company to list on Nasdaq in New York through a merger with a SPAC called Vistas Media Acquisition Company Inc., which went public in August Raised $100 million in 2021.

However, SPACs pose considerable risks. Many of the SPACs created in the past two years ended up not closing, so investors lost money, and those that did underperform in the market. Critics of the tool say it undercuts the quality of exchange companies and encourages speculation.

For U.S. SPACs, stocks aren’t doing well – Proprietary CNBC SPAC 50 Index. , which tracks the 50 largest pre-merger blank-check deals in the U.S. by market value, is down more than 16% from a year earlier. At a time when interest rates are rising and the cost of capital increases, investors may turn to companies that generate cash flow.

Tala Al Jabri, a venture capital investor active in Saudi Arabia and the UAE, said the move was still important and the timing meant the UAE had time to learn from deals with SPACs in other markets.

The UAE “has an opportunity to sit back and watch SPACs perform in other markets and will be able to try to correct and mitigate some of these risks. It’s a bold move, of course, but not yet an emerging market that suggests its capital markets are competing for such investments opportunity,” she said.

“Having a SPAC framework is the natural next step in developing its capital markets,” Al Jabri said. “I look forward to other GCCs [Gulf Cooperation Council] Countries will follow the development framework. “

What could be in the UAE’s favor, she added, is the “global nature of its startup ecosystem”, “as well as increased scrutiny and regulation of SPACs in developed markets, especially the US”