Jersey well positioned for SPACS growth

By Maria McDermott, Business Development - Asia, Jersey Finance

Whilst Special Purpose Acquisition Companies (SPACs) are not necessarily new concepts, over the past year or so, there has been something of an explosion in their use as companies seeking capital from public markets, together with investors, have seen the benefits of this alternative to the traditional IPO route.

Traditionally, the US has been the hub for SPAC activity - according to SPAC Analytics, there were fewer than 60 SPAC listings in 2019 compared to 248 in 2020, raising US$83bn.

There are a number of reasons for this growth, including the fact that SPACs tend to be more flexible, cost-efficient and quicker than the usual IPO model.

Over the course of 2021 and spurred on by this perceived growth in the US, interest in SPACs has spread further afield too, with a number of European markets exploring opportunities in this space.

The European Securities and Markets Authority (ESMA) issued a statement in July this year, for example, providing guidance to EU markets on the expected disclosures and risks covering investor protection around SPACs, such as the application of MIFID product governance rules for retail investors.

Significantly, in August, the Financial Conduct Authority also introduced new rules for SPACs in the UK, designed to enhance investor protection on the London Stock Exchange, for example, ring-fencing initial raised capital and enhancing disclosure requirements.

?The new rules also included measures such as increased flexibility around target acquisition announcements and relaxed suspension rule exemptions, all aimed at making the UK a more attractive centre for SPAC listings generally.

These measures are bolstered further by the high regard in which the UK’s Corporate Governance Code and Listing Rules are held amongst international investors – including those based in Asia.

Indeed, from an Asian perspective, the UK Corporate Governance listing regime is a key driver towards UK-focused investment more widely – it is tried and tested and has evolved in line with market developments and sets a gold standard for corporate governance globally.

Furthermore, the high standard of the disclosure of information and transparency available to shareholders within the UK Corporate Governance Code and Listing Rules also attracts non-UK focused investment, such as Chinese property funds listing in London, which results in London offering a quality investor base to capitalize on regardless of the jurisdictions that a listed entity will invest in.

That reputation now looks set, in tandem with the FCA’s new rules, to fuel further growth in the UK SPACs market.

Commenting on how the FCA’s recent rule changes are already having the intended effect, Tom Attenborough, Head of International Primary Markets at the London Stock Exchange, said:

"The FCA’s?updates to the listing rules for SPACs help ensure that London continues?to provide a choice of?routes to market for issuers and investors.?Since the rules came into effect, we’ve seen an increase in interest from SPAC sponsors, and our SPAC pipeline is growing.?Greater flexibility for issuers?- combined with strong corporate governance and appropriate safeguards for investors ? creates a positive environment for both UK and international SPACs to list in London.”

Quality

There’s no doubt that, in line with the global growth trend in SPAC activity, Asian investors are looking increasingly at the benefits such an approach can offer. And whilst markets such as Singapore and Hong Kong are developing their own SPAC-friendly environments too, the European access and robust corporate governance frameworks offered by the UK look set to offer an appealing prospect to the Asian market, particularly institutional investors Clare Cole, Director of Market Oversight at the FCA commented on the changes:?

"We need to act to meet the needs of an evolving marketplace. These changes ensure the UK's markets maintain their reputation for dynamism, helping support the new types of companies seeking the investment that drives economic growth and by giving investors more choice with appropriate protection. Over the last few months, we have moved quickly to address areas where our rules could be improved to encourage innovation in primary markets. By taking this agile approach, we are pleased that new IPOs in 2022 will be able to benefit from the revised rules."

The focus is undoubtedly on the quality, premium end of the market, with London having its sights set on rivalling other major European and non-European centres, such as Hong Kong and Singapore, for SPAC activity.

In this context, Jersey is very well placed to support this trend. As a jurisdiction, Jersey has vast experience not only in supporting the asset holding and investment objectives of a broad range of investor types across Asia, but it is also able to offer an efficient, familiar route to listing on the LSE through the Jersey company structure. Indeed, there are more Jersey companies listed on the LSE or AIM than any other country, other than the UK.

Jersey company structures are familiar to global investors, flexible, efficient, tax neutral and integrated into Jersey’s high quality regulatory framework, which complies with global standards – complementing the UK’s focus on quality business. It is also possible to settle Jersey share transfers electronically through CREST, whilst the UK Takeover Code will also apply to Jersey companies, making them highly attractive to investors.

Critically, SPACs are expected to ‘behave’ like listed vehicles, and for this reason, must comply with the highest standards of oversight, governance and compliance.

The access Jersey offers, therefore, to the necessary expertise is highly attractive. It can offer easy contact to a high number of qualified governance professionals in the jurisdiction who are members of the Chartered Governance Institute (CGI), with many Jersey firms having staff who are either fully qualified or studying towards this qualification. This is a vital requirement when it comes to both listing an entity and post-listing compliance with the UK Corporate Governance Code and Listing Rules.?

?As the interest in SPACs continues to gather pace beyond the US and with its strong reputation for corporate governance, London looks set to assert its position as an attractive market, including for Asian investors. With its experience in supporting the needs of the Asian market, and its specialist expertise in managing and servicing listed vehicles in London, Jersey is in a prime position to support this trend and an anticipated rise in high quality SPACs activity.