SPAC’s Debut in Asia @ SGX

Special Purpose Acquisition Companies or SPAC’s have been pivoting the private enterprise into the public markets in quick time, creating a market for a company's equity and providing innovating companies an access to a broad range of investors, enabling their accelerated growth.

On September 2nd, 2021, Singapore Stock Exchange (SGX) announced its new guidelines allowing SPACS to be listed on its main board wef Sept 3rd . This is a landmark decision and would be a turnaround for Asian Capital Markets given the initial euphoria of SPAC in the US Markets . It also shows the confidence in Asian Markets, especially when the structure is being questioned in US and is under scrutiny from the regulators on investor protection and financial safety. It won’t be a surprise to see few lawsuits lined up shortly and a “Coinbase” moment around the corner for SPACs in US as well.

SGX SPAC Framework now allows companies especially the new tech and fast-growing emerging ones with alternative fund-raising options at a more certain price discovery mechanism, without the rigorous IPO route and timelines therein.

An SGX listing under the SPAC framework must have the following key features:

·??????Minimum market capitalization of S$150 million

·??????De-SPAC must take place within 24 months of IPO with an extension of up to 12 months subject to fulfilment of prescribed conditions

·??????Moratorium on Sponsors’ shares from IPO to de-SPAC, a 6-month moratorium after de-SPAC and for applicable resulting issuers, a further 6-month moratorium thereafter on 50% of shareholdings.

·??????Sponsors must subscribe to at least 2.5% to 3.5% of the IPO shares/units/warrants depending on the market capitalization of the SPAC

·??????De-SPAC can proceed if more than 50% of independent directors approve the transaction and more than 50% of shareholders vote in support of the transaction

·??????Warrants issued to shareholders will be detachable and maximum percentage dilution to shareholders arising from the conversion of warrants issued at IPO is capped at 50%

·??????All independent shareholders are entitled to redemption rights

·??????Sponsors promote limit of up to 20% of issued shares at IPO

?Source -SGX

While in the US after the 2020 SPAC boom that saw many EV, Green Tech, Smart Vehicles, Gaming , Space Tourism and other emerging fast-growing sector going public using the SPAC route, there is some market correction happening currently with new listings totaling only US$16 billion in the second quarter of 2021 (ref S&P Global) as compared to US$88 billion in Q1 2021. Further US is seeing an excess supply of SPACS with over with over 400 US-listed SPACs currently searching for targets and won’t be surprised that few of them may get dissolved ultimately, without a successful merger. ?

The SGX move earlier this month, is timely given the lacklustre IPO trends in 2021 that saw only 3 IPO’s totaling to USD 200M being raised vs 46 listings in Hong Kong , raising US $27.4 Billion and our very own Grab going for US listing using a SPAC via Altimeter valuing it at USD 40 Billion later in 2021. SGX has lost few high growth companies in the past to US and Hong Kong and the SPAC'S for sure are going to create lot of buzz and vibrancy given its debut in a major Asian market with Hong Kong to follow (consultation paper are underway). ?This also shows the emergence of the new tech and emerging companies, the demand for a diversified financial product in Asia and a conviction among regulators that SPACs have an important role to play in the region's capital markets if introduced with the right guard rails . I do expect that with the addition of SPAC listing, the SGX will be able to attract more investors due to the diversification of investment products and the further addition of liquidity to the capital markets beyond the routing trading of few REITS, Infra Bonds, etc.

To ensure the right market participation and adapting to the learnings from the US markets, SGX has framed its guidelines in a consultative manner taking into consideration the overall interests and feedback of market participants therein balancing the need of protecting the interest of investors and providing enough credibility to SPAC, in parallel.

It will take time to establish itself as a viable SPAC market for Singapore, with thin trading volumes vs US. However unlike in the US capital markets wherein sponsors may land investors with a bad deal, Singapore's rules support that sponsor must buy a minimum portion of any SPAC listing, and their shares will be locked up for at least six months after a merger is completed. This should help potential investors an additional safety on their investments.

While our very own Grab in SEA is going for a public listing in US by end of 2021 through a SPAC sponsored by Altimeter Group at a premium valuation, I do expect several high-growth private companies with a great business plan to use this opportunity to raise capital and go public debuting at SGX. Will be watching this space with excitement and probably partner one of them in their next phase of growth !!

Source-Various Public Articles and Economist, Views Expressed are personal and based on the research.