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What is a SPAC
@SECPakistan recently came up with guidelines for Special Purpose Acquisition Company (SPAC). But what is it? A quick ELI5 primer.
Let's say you're Rehmat-e-Shireen (ReS), a nice mithai empire, w/ sales of more than PKR 2bn -- and you want to list on PSX
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@SECPakistan recently came up with guidelines for Special Purpose Acquisition Company (SPAC). But what is it? A quick ELI5 primer.
Let's say you're Rehmat-e-Shireen (ReS), a nice mithai empire, w/ sales of more than PKR 2bn -- and you want to list on PSX
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If yo happy directly, it's a long tedious process w/ ridiculous amount of documentation. Meanwhile, a group of investors on the side say that ReS can be a great play on consumer spending -- so let's get it listed. The investors create a SPAC, and list it on PSX.
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Since it's just a 'shell' company w/ no ops, etc., Listing is easy. Now that Spa through the PSX can raise funds from public. The SPAC say raises PKR 500m from market, and has anchor investors putting their own PKR 500m, for a total size of PKR 1bn
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The SPAC then goes out 'shopping', and figures that ReS is a great business. They approach ReS work out numbers, and then ReS 'merges' w/ SPAC. Now as ReS merges w/ SPAC, it gets listed on the PSX through an indirect listing. Now you can participate in sugar-driven growth
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Locally, a process which was often used is that of 'reverse mergers', where a well established company buys a dead/defunct company on the PSX, and gets listed. The SPAC route allows public investors to also participate.
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Will SPAC be a success here? Doubtful. Someone needs to demonstrate it first. Not many players in the market who can be trusted, too many shady operators out there. More importantly, not many understand how the structure actually works. Here is to hoping something works out.
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