Saudi Capital Markets. Special Purpose Acquisition Company (SPAC)

Rules on the Offer of Securities and Continuing Obligations

Scope and Background

The Capital Market Authority has introduced a dedicated regulatory framework for Special Purpose Acquisition Companies (SPACs) and enacted it under an updated version of the Rules on the Offer of Securities and Continuing Obligations (ROSCO). A SPAC is a joint stock company with no pre-existing commercial operations, established for the sole purpose of raising capital through a public offering on the Parallel Market (Nomu) and deploying that capital to acquire or merge with an identified target company within a fixed regulatory timeframe. The framework offers an alternative route to public markets for Saudi unlisted companies, allowing them to achieve a listing through a merger or acquisition rather than a conventional Initial Public Offering (IPO) process.

Structure and Key Parties

Every SPAC must be established by a sponsor, which must be a Capital Market Institution (CMI) licensed by the CMA to carry out investment management activities. The sponsor is the driving commercial party: (i) it identifies the target; (ii) leads the transaction process; and (iii) bears primary regulatory responsibilities throughout the SPAC's lifecycle. The sponsor is required to hold between 5% and 20% of the SPAC's capital at all times following the offering, with any increase resulting from shareholder redemptions not counting as a breach of the 20% ceiling. The sponsor's shares are ordinary shares and are fully paid, and the sponsor is subject to a strict lock-up, it may not dispose of its shares until one year has elapsed from completion of the acquisition or merger transactions, with an exception permitting disposal of up to 50% of its holding after six months from transactions completion. 

Listing and Capital Requirements

SPACs may only be listed on Nomu and are not eligible for the main market, as the framework is embedded within Part 8 of ROSCO. The SPAC's post offering capital must be no less than SAR 100 million. SPACs are carved out from two conditions that ordinarily apply to Parallel Market issuers: (i) the requirement to have carried on a main activity for at least one financial year; and (ii) the requirement to submit audited financial statements for the preceding year, reflecting the fact that a SPAC has no operating history by design. These exemptions cease to apply if the SPAC has been established for one financial year without completing its listing. 

Escrow Arrangement and Use of Proceeds

Following the close of the offering, at least 90% of the SPAC's capital must be deposited into a dedicated escrow account held at a local Saudi bank that is not affiliated with the sponsor. The escrow funds are strictly ring-fenced and, may only be used for four purposes: (i) funding the acquisition or merger transaction; (ii) paying redemption amounts to shareholders exercising their rights; (iii) paying redemption amounts upon a liquidation trigger under Article; and (iv) investing in low-risk money market instruments, bank deposits at a local Saudi bank, or money market funds established in the Kingdom, with any resulting profits applied solely toward search and transaction costs. The remaining portion of capital not held in escrow (up to 10%) may be used to cover offering expenses and target search costs. The SPAC may borrow up to 25% of the escrow balance to finance the transaction or cover transaction costs, provided that the escrow account and its deposits may not be pledged or charged as security for any such borrowing.

The Acquisition or Merger Transaction

The SPAC must complete its acquisition or merger transaction within 24 months from the date of listing on the Parallel Market. This period may be extended by a maximum of 12 additional months with the approval of the extraordinary general assembly (EGA), provided that the sponsor and its affiliates are excluded from voting on any such extension and the CMA is notified. The target must be a Saudi company whose shares are not listed on Tadawul or any other stock exchange, and must independently satisfy the conditions for listing on the Parallel Market under the Listing Rules. The value of the target must represent at least 80% of the escrow balance, and the SPAC's shareholders must hold at least 30% of the target's shares following completion of the transaction. The sponsor and any investment fund it manages are prohibited from holding any direct or indirect ownership interest in the target, and the sponsor may not serve as financial advisor for the transaction.

Shareholder Protections and Redemption Rights

A core investor protection under the framework is the right of public shareholders to redeem their shares for cash from the escrow account. All shares held by investors other than the sponsor and its affiliates are classified as redeemable shares at the option of shareholders. Redemption rights arise in three scenarios: (i) where the EGA approves the transaction, an extension of the deadline, or a change in the target criteria without the individual shareholder's approval; (ii) where the SPAC fails to complete the transaction within the prescribed period or fails to obtain the necessary approvals to extend it; or (iii) where all non-escrow funds are exhausted before the transaction is completed. Upon any such trigger, the SPAC must notify shareholders within 3 business days and take all necessary steps to implement the redemption without delay. Redeemable shares convert to ordinary shares only upon successful completion of the transaction. 

In addition to the sponsor lock-up described above, the substantial shareholders of the target company whose ownership is disclosed in the shareholders’ circular are subject to a separate lock-up. They must not dispose of any of their shares in the listed company for a period of six months from the date on which the listed company’s shares first commence trading on the Exchange following completion of the transaction, unless the shareholders’ circular specifies a longer period.

Continuing Obligations 

A listed SPAC is subject to all continuing obligations applicable to Parallel Market issuers under Part 7 of ROSCO, as incorporated by Article 94. In addition, the SPAC must disclose on a semi-annual basis the developments in the proceeds of the offering and their utilisation, the current escrow account balance and all utilisations thereof, and the sponsor's progress in searching for a target company for the acquisition or merger transaction. This obligation ensures ongoing transparency to shareholders throughout the pre-transaction period and is in addition to the general disclosure, material development reporting, and restrictions on dealings obligations under Part 7 of ROSCO.

Next Steps

At Ashurst, we welcome a discussion on the implementation of this framework across structuring, documentation, offering processes and ongoing compliance.

Authors: Majed AlSaggaf; Junior Associate