Israel Securities Regulator Sets Terms for Tel Aviv PSPCs
The Israel Securities Authority (ISA) on Sunday outlined the conditions under which Special Purpose Acquisition Companies (SPAC) can be established in Israel, which was not possible until now due to obstacles regulatory. The terms are meant to protect investors, the ISA said.
The ISA set the rules after being approached by a number of companies interested in publishing a prospectus for setting up PSPC on the Tel Aviv Stock Exchange.
PSPCs, also known as “blank check” companies, are a form of shell company created by an entrepreneur, called a sponsor, for the specific purpose of raising funds through an initial public offering of shares to acquire or merge with another company – this one with operations – which is seeking to go public via a reverse merger.
SPACS, which took off last year in the United States and around the world, has provided private companies with a popular and alternative way to go public.
The Tel Aviv Stock Exchange does not currently allow PSPCs because its regulations, decades ago, state that companies can only issue shares on the stock exchange if they have an operational history of a period of one year, or if they raise more than 200 million NIS ($ 61 million).
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“The terms and principles formulated by the Authority aim to create an equivalence of interests between the entrepreneur and the investors, to strengthen the mechanisms of protection of the investing public”, declared Anat Guetta, the president of the ISA, in a statement.
Among the stated conditions: The ISA will allow promoters to raise a minimum of 400 million shekels ($ 123 million) through an offering of shares only or of shares and options on shares; the entrepreneur who creates the SPAC will have to invest at least 40 million shekels in the company; and at least 70% of investments in PSPC must come from institutional investors. SPACS will have a period of up to two years to merge with a target company, and funds raised so far will be held and invested by an external trustee.
A general meeting will have to approve the mergers and the shareholders who oppose the merger will get their funds back. The ISA also set limits on the benefits to the contractor (or the sponsor of the PSPC) and the length of time they must maintain their participation in the merged operation.
The authority is currently in talks with the Tel Aviv Stock Exchange to update its regulations, the statement said.
“Investing in a PSPC carries significant risks for the investment community. In particular, a decision to invest in a company of this type is largely based on the reputation and ability of entrepreneurs to locate a potential investment in a target company and execute a transaction to merge its activities into a PSPC ”, said declared the ISA in the statement.
Information about the activity in which the money will be invested does not actually exist at the time of issuance and, therefore, it will be difficult for the investor to make an informed investment decision, the statement said.
The authority said it had taken a close look at the matter over the past year, including regulations governing other financial markets.
The authority will continue to monitor developments on the ground and update investor protection mechanisms as needed, “anywhere and anytime,” Guetta added.