After a lengthy process and as one of the last stock exchanges in Europe, SIX Exchange Regulation (together with SIX Swiss Exchange, "SIX") has enacted its new rules on special acquisition companies (SPACs). The new rules will enter into force on 6 December 2021 and finally open up the possibility for the listing of SPACs in Switzerland. The new rules are designed to provide a high degree of investor protection. Some of the new provisions, such as the requirement to use a Swiss incorporated company as the SPAC vehicle and to commission an independent fairness opinion for the De-SPAC go beyond mere disclosure rules and impose substantive requirements which may be viewed onerous and costly by sponsors. It remains to be seen whether the elevated level of investor protection compared to other international listing venues will attract or rather deter listings of SPACs at SIX.

1 GENESIS OF THE NEW RULES

Earlier this year, SIX had been approached by sponsors preparing a listing of their SPAC on SIX. The intention of these sponsors was to list the SPAC under the regular listing regime based on case specific exemptions to be granted by SIX due to the nature of the SPAC (in particular no historical financial statements). FINMA subsequently became aware of the impending SPAC listings and requested the enactment of new specific SPAC rules from SIX. Thus, SIX set up a working group to draft the necessary changes to the listing framework. A lengthy exchange between SIX, its issuer's committee and FINMA must have taken place which led to the final design of the rules as presented here.

2 REGULATORY FRAMEWORK AND APPLICABLE STANDARDS

SIX, the main Swiss stock exchange, is a private body but has rulemaking power in the area of listing on the exchange operated by it. However, SIX is supervised by FINMA and its listing and trading rules need to be approved by FINMA. This also applies to amendments of the SIX listing rules ("Listing Rules"), which govern the conditions to list and maintain the listing of securities on the exchange. In the context of SPAC listings, the Listing Rules were amended to allow for a new "Standard" of listing for SPACs alongside existing listing frameworks, such as the International Reporting Standard, the Swiss Standard, which are the regular listing framework for operating companies, and the specific standards for certain types of issuers or instruments such as the standards for real estate companies or investment companies. The Listing Rules now include a definition of a SPAC and the basic rules for listing of a SPAC and for the De-SPAC process.

The main substance of the new SPAC rules is to be found in the new Directive on the Listing of SPACs ("Directive"). It includes the requirements on disclosure of information to investors in the context of the SPAC listing as well as in the De-SPAC process. It also sets out certain substantive requirements, for example as to the required escrow account as well as use of proceeds from the SPAC IPO deposited on it. The Directive also imposes a requirement for a fairness opinion by an independent body, usually an audit firm, in the De-SPAC process.

The Directive on Financial Statements has also been amended to address the applicable accounting rules for the new SPAC Standard. It clarifies that only IFRS and US GAAP are permissible accounting standards for SPACs. Swiss GAAP FER are not permitted, but may be used upon De-SPAC in the context of the then required change to a standard for operating companies.

3 LISTING OF A SPAC

Definition

The Listing Rules define a SPAC as a Swiss corporation (Aktiengesellschaft) whose sole purpose is an acquisition of or a merger with one or more target companies (De-SPAC) and which will be dissolved after a maximum of three years from the first trading date absent a De-SPAC.

The requirement that only Swiss corporations (Aktiengesellschaften or "AG") may be listed appears to be strict compared to the relatively liberal practice of cross-border SPAC listings within Europe. It prevents the use of foreign listing vehicles that are more attractive from a corporate perspective because they offer easier corporate law solutions for the redemption rights of investors of a SPAC. Also, Swiss AGs will have to pay a 1% stamp duty on the IPO proceeds, except if equity-linked securities will be used (in which case the stamp duty will only kick-in upon conversion). The requirement of a Swiss AG originated from the Swiss Collective Investment Scheme Act, which exempts Swiss listed corporations from regulation altogether, but does not do so for foreign corporate entities. This requirement seems, therefore, to address a concern of FINMA that by allowing SPACs incorporated in foreign jurisdictions, the Swiss regime on collective investments could be evaded.

Mandatory SPAC Features

While the maximum duration of three years for a SPAC seems relatively generous for sponsors, the Listing Rules also turn certain typical features of SPACs into mandatory requirements. This applies to:

  • Trust account: Proceeds raised in the IPO of the SPAC must be held on a trust account of a licensed bank in Switzerland or foreign financial institution with similar prudential supervision. The latter will hardly be relevant in practice as only Swiss corporations may be listed as SPACs. Although the new rules do not state the requirement that the proceeds must be deposited in CHF, we expect that in most cases, SPACs will choose CHF as their main currency for practical reasons.
  • Redemption right: Holders of shares having been issued in the SPAC IPO must have the right to redeem their shares in a De-SPAC transaction. Such right may be limited to those holders of shares, who voted against the De-SPAC transaction.
  • Liquidation preference: Holders of shares having been issued in the SPAC IPO (i.e. who are unrelated to sponsors, members of the board of directors and the management) must be privileged in case of a liquidation of the SPAC.
  • Lock-ups: Founder shareholders, sponsors as well as members of the board of directors and management must enter into lock-up undertakings in respect of their shares in the SPAC lasting for at least six months following completion of the De-SPAC.
  • Convertible bonds: Special rules apply to SPACs issuing convertible bonds in lieu of shares. Any such issuance might be considered unusual against the backdrop of international practice but may have two benefits in the Swiss context: Stamp duty would kick in only upon conversion into shares (Aktien) of the SPAC vehicle and the redemption right is easier to implement for a debt instrument such as convertible bonds.
  • Change of listing standard upon De-SPAC: Within three months from completion of a De-SPAC the listed entity must leave the Standard for SPACs and apply for a change in standard, usually to the International Reporting Standard or the Swiss Reporting Standard, where operating companies are usually listed.

Disclosure, Accounting Rules and Calculation of Capitalization

SIX requires additional disclosure items in the prospectus prepared in connection with the listing of the SPAC vehicle. The Listing Rules require that the SPAC discloses adequate information about the SPAC. The Directive specifies this rule by requiring the following specific disclosure items:

  1. Quantitative examples for the investment of a public shareholder: The prospectus must provide scenarios for a De-SPAC transaction considering the capital structure and the securities offered. The examples must disclose the percentages of the stakes of the sponsors, the management, the public shareholders and potentially other classes of shareholders (e.g., private placement investors). The examples need to consider any potential conditions for the issuance of additional capital and show the highest potential dilution for the different investor classes as well as for potential convertible instruments, including warrants. Further, SIX requires the disclosure of compensation in favor of the sponsor or of the management, which the sponsors and the management, respectively, will receive in addition to the SPAC shares or the shares in the company after the De-SPAC transaction. In addition, the prospectus has to present the amount originally invested by an investor and the potential decrease due to taxes, costs and other expenses at the time of the De-SPAC. As at the time of the IPO, the De-SPAC transaction is not yet known, the examples will include underlying assumptions which may differ from the actual De-SPAC transaction.
  2. Additional disclosure items due to the specific structure of the SPAC:

(1) Disclosure of conflicts of interest and roles of lead banks: These disclosure items include the publication of potential conflicts of interest of the founding shareholders, the sponsors, the members of the board of directors, the management as well as adequate measures to prevent or mitigate these conflicts. Also, the lead banks must describe their role in the IPO of the SPAC, which corresponds largely to the same role as in a traditional IPO. However, the banks will typically have a role in the De-SPAC transaction, which needs to be explained to investors. To alert investors to potential conflicts of interests, which may arise due to the different roles of the bank, the IPO prospectus must highlight such potential conflicts.

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Originally published November 2021

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