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A
burgeoning dealmaking instrument, SPACs raise money to acquire a
private firm with the purpose of taking it public, allowing the
target to list more quickly on share markets than via
traditional initial public offerings.
Such lightly regulated vehicles are currently not permitted on
UAE bourses, however, encouraging companies to seek out
alternative venues and putting local equity markets under
pressure to change regulations to cash in on the trend.
After a strong run of acquisitions in the United States, SPACs
are looking at emerging markets, with a focus on Asia. But there
are potential targets in the Middle East and the UAE in
particular, market participants say.
"SPACs are speaking to us about companies here they'd like to
merge with to go public," said Fawad Tariq-Khan, head of
investment banking at Dubai-based SHUAA Capital.
"There are candidates that provide growth and have the potential
to become global, and an added benefit for SPACs is the (Gulf
states') dollar peg, implying limited currency risk for
U.S.-listings," he said.
Technology companies are the biggest candidates for SPACs, said
Walid Mansour, partner at Middle East Venture Partners (MEVP),
as "demand for financing overwhelmingly exceeds supply."
The UAE's equity markets have not seen sizeable IPOs over the
past few years. Dubai logistics firm Tristar on Tuesday
announced an intention to float on the Dubai bourse, which would
be the bourse's first big-ticket listing since Emaar Development
in 2017.
Companies have for many years deserted their home markets for
listings in London, which offers deeper liquidity and a path to
join the benchmark FTSE indexes.
"A lot of it has to do with the ease of listing. It's a wake up
call for local exchanges," said a banking source.
Abu Dhabi-headquartered Anghami, the Middle East's rival to
Spotify, recently announced it was merging with a SPAC, with a
planned listing on the Nasdaq exchange, after achieving the
valuation it was looking for.
Abu Dhabi's Brooge Petroleum and Gas Investment Co (BPGIC),
which operates an oil storage and service business, listed in
2019 on Nasdaq after a merger with a SPAC to establish a global
presence and access liquid markets.
LOCALISING SPACS
The UAE recently introduced a raft of reforms, such as a cut in
trading fees, aimed at making its equity markets more
attractive.
But such measures may not be enough. SPAC mergers have become
more attractive to Gulf companies which find traditional IPOs
more complicated and expensive, yet uncertain to succeed amid
lacklustre investor appetite.
Trading volumes have declined substantially on local bourses
from highs seen in 2014, which indicates that investors interest
in those markets has dropped, said Mohammed Ali Yasin, the chief
strategy officer at Al Dhabi Capital in Abu Dhabi. Total traded
value in the UAE has slumped by 74% since 2014 to 127.5 billion
dirhams ($34.7 billion) last year.
To meet the challenge, the Dubai Financial Market, the emirate's
main exchange, is consulting market participants about inviting
SPACs to list in Dubai, a source familiar with the matter said.
Amsterdam emerging as a capital of sorts for such listings,
while Britain has also said it will modernise its listing rules
to attract more "blank cheque" flotations in the City of London.
"We are talking to some of the regional exchanges about
localising similar structures," said May Nasrallah, a founder
and executive chairman of deNovo Corporate Advisors.
"I think it will take more time and effort to get them
comfortable with how (SPACs) could work for this market, but
they are listening."
($1 = 3.6728 UAE dirham)
(Additional reporting by Saeed Azhar; Editing by Toby Chopra)
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