The Abu Dhabi Global Market (ADGM) has recently launched a framework to regulate Special Purpose Vehicles (SPV) operations in the region. The approach aims to provide a business-friendly ecosystem to cater to various business needs and visions.
The framework would work alongside other ADGM's regulations, namely the Companies Regulations, the Commercial Licensing Regulation, and the Foundations Regulations.
SPV is a subsidiary with different legal status as its parent company to undertake specific business purposes and activities such as isolating financial risks and obligations.
Among its benefits are ring-fencing assets, separating legal personalities, and optimizing international practices. It can also act as a black-check company to acquire foreign private companies and list them on the public market, commonly known as Special Purpose Acquisition Company (SPAC).
The legislation follows the earlier English model regulating SPVs to follow the Companies Regulations, equipping SPV with a consistent commercial license to operate. Through this, SPV can leverage Abu Dhabi's favorable tax environment as the holder of a tax residency from the UAE Ministry of Finance and avoid extensive double taxations.
Mitigating the Risk of SPVs
However, in the past, SPV has played a role in significant financial and accounting scandals through the misconduct of off-balance sheet treatment.
To address the potential risks imposed by the misconduct in Special Purpose Vehicles securitization, ADGM has provided a proportionate Company Service Providers (CSP) framework.
The framework will impose specific obligations and ensure the SPV and foundations appoint a licensed CSP to operate in the ADGM unless they qualify for an exemption.
Abu Dhabi allows exemptions for SPVs of a person that currently exempts to obtain a license to use in or from the area or authorized person to undertake a regulated operation in the market. Companies and subsidiaries with admitted shares on a regulated market are also subject to an exemption.
Under the framework, CSPs must comply with certain obligations regarding recording and bookkeeping of the SPVs to mitigate the risk of fraud and misused funds.
Companies that can prove an appropriate presence in the UAE--through assets, turnover, and governance--can also exempt alongside foundations with current resources, experience, and personnel within the region.
The surge of Investments Through SPVs
The recent formation of the SPV framework has immediately gained investors' interest in the region. The country's sovereign fund Mubadala would soon launch two SPVs to merge with middle east technology and healthcare companies on an approximately USD 200 million valuation.
Singapore-based media and entertainment enterprise Vistas Media Capital has also expressed its interest to inject USD 150 million funds into the ADGM's SPVs in the form of a multi-strategy fund including sponsor capital, pre-IPO, and Private Investment in Public Equity (PIPE) deals.
The SPV intends to merge with Anghami and become the first tech company from the UAE to list in the Nasdaq stock exchange.
The formation of Special Purpose Vehicles’ frameworks in the ADGM has triggered the increase in stock-market listings through SPACs and foreign businesses expansion through SPVs in the region.
ADGM now leads the movement in benchmarking the business-friendly initiative for other markets and international hubs to follow its path.
