Queen’s Gambit to Acquire SWVL

By Aya Ghazy

30\11\2021

There is a 99.9 % chance that you heard of SWVL!

SWVL is transformative mass transit and shared mobility solutions company based in Dubai with a $26 million gross revenue in 2020. 

And recently an American company called Queen’s Gambit bought about 35 % of SWVLs shares for $445 million. This acquisition led to SWVL transformation from a private company to a joint-stock company (a publicly listed company on the American Nasdaq Stock Market). 

So, what makes this acquisition so special? And would it affect the Egyptian market in any way?

What makes this acquisition extraordinary is the very legal nature of Queen’s Gambit as a SPAC (a Special Purpose Acquisition Company) 

A SPAC is a company with no existing commercial operations, made by investors or sponsors with expertise in a particular industry or business sector with the sole aim of holding acquisition to another company within two years or it faces liquidation.

Hence the process goes as follows:

A group of very acknowledged experts in their field decides to make a SPAC, the latter goes public by an initial public offering ( IPO ), the SPAC units are bought just like normal shares. The money collected is kept in short-term Treasuries. At this stage, the company has no commercial activity, no identified targeted company for its acquisition purposes. And that is why A SPAC is also called a blank check company. 

So what makes it so unique?

The acquisition company will go public without going through the ordinary, very time-consuming, risky process of an IPO, which usually takes up to 6 months in the best circumstances.

So what is the catch? Can it be that good? 

SPACs had a fraudulent reputation tell new rules were enacted to allow investors to redeem shares before acquisitions if objections were made. 

Do you think that queen’s gambit acquisition to swvl affected the Egyptian financial regulations in any way? 

The answer is Yes!

By mid-2021 The Egyptian Exchange (EGX) submitted a proposed amendment to The Financial Regulatory Authority (FRA) introducing article 8 bis of law no. 95 / 1992 regulating the existence of SPACs. Provided that the latter is contracting with one of the FRA’s licensed investors in related fields (Direct Investment / Venture Capital).

Shortly after, on the 30^th of October 2021, the FRA  issued Resolution No. 146 / 2021 authorizing Venture Capital engagement with the SPACs activities in accordance with the Capital Market Act, its Executive regulations, and executive rules promulgated by the FRA’s Board of Directors.

But how is this regulation affecting the Egyptian market?

Perhaps the most apparent effect is to be in line with international practices, as in the last couple of years. SPACs’ witnessed tremendous global growth. In the USA SPACs Issuance volumes multiplied nearly six times, from $13.1 billion in 2019 to $80.4 billion in 2020. And as of 31 May 2021, the US had already exceeded last year’s numbers by around a fifth ($98.5 billion).

Europe also witnessed a similar growth wave with $3.9 billion in SPAC issuance in 2020. And Just a few days ago, Abu Dhabi Securities Exchange (ADX) has proposed a regulatory framework to allow the listing of SPACs in the local exchange market.

Studies also show that it will unlock new horizons for startups with high growth prospects. It will further facilitate investors' access to the Egyptian market supporting the 2030 Egyptian Vision of empowering the private sector.

Future Steps!

Although the said regulation had an immense effect on the Egyptian capital market, further resolutions are needed to regulate the blank cheque companies in Egypt. Fortunately, the FRA expressed its eagerness to study and analyze SPACs' international practices to prepare conclusive drafted rules. Hence, on the 17th of November, the FRA issued resolution no.  (171) and ( 172 ) for the year 2020, regulating key aspects in the listing process of said companies.

For further information about SPACs and SWVL’s acquisition, check the below links.

https://www.youtube.com/watch?v=jfNFI5JhrvA

https://www.cnet.com/tech/black-friday-2021-sales-under-50-you-wont-break-the-bank-for-these-great-deals/

https://queensgambitspac.com/investor-materials/

https://fra.gov.eg/wp-content/uploads/2021/11/164.pdf

https://fra.gov.eg/wp-content/uploads/2021/11/171.pdf