SPACs: Popular in the United States, what about Singapore?

Special purpose acquisitions companies (SPACs) are companies incorporated with the intention of raising capital through an initial public offering (IPO) to acquire existing target companies or assets that are only identified after the IPO. Retail investors are able to participate in investments commonly only available to private equity funds. It is typically conducted via a reverse merger, whereby the existing shareholders of the operating target company become the majority owners of the combined entity. The previously private company becomes a publicly traded entity (also referred to as a “de-SPAC transaction) thereafter.

The United States perspective

As compared to the traditional IPO, the listing of a SPAC (“SPAC IPO”) can be quicker. From a US perspective, SPAC IPO was widely approved, given that over US$83 billion was raised through SPACs in 2020.

  • In general, a traditional IPO will typically take between four to twelve months in the US whereas a SPAC IPO can take as little as nine weeks to complete.
  • A traditional IPO has a typical underwriting discount of 5 – 7% of the gross IPO proceeds, whereas a SPAC IPO underwriter receives a discount structure of 2% of the gross IPO proceeds.
  • The arrangement of financial statements for a SPAC listing is usually a brief process and can be conducted in a matter of weeks. This is due to the fact that a SPAC does not have any historical financial results or assets to be published and its business risk factors are minimal. In contrast, the preparation of financial statements for a traditional listing implicates a lengthier process of a few months depending on the amount of historical financial records and assets that would be published.
  • Under securities laws rules, a traditional IPO should disclose only its historical financial statements. It is unusual for them to include financial projections and related prospectus before listing due to the liability risks associated with such disclosures. However, the same constraints are not applicable to de-SPAC transactions, since the target company becomes a listed company by merging with a SPAC, it can include financial projections in connection with the de-SPAC transaction. The forward-looking projections are then used to market the business combination to the investors.
  • The lock-up period for a SPAC IPO can be up to one year from the closing of the de-SPAC transaction, but this is subject to early completion if the common shares trade above a fixed price consistently, starting 150 days after the closing of de-SPAC transaction. On the contrary, a traditional IPO typically undergo a 180-day lock-up period from the pricing of the traditional IPO.
  • Nonetheless, both SPAC IPO and traditional IPO require to have a majority vote of independent members before the end of a 12-month phase-in period from the date of listing as per the exchange requirements.

The Singapore perspective

The Singapore Exchange Regulation (“SGX RegCo”) has recently announced that it is going into another public consultation on SPAC listing on the Singapore Exchange (“SGX”) and is pushing for approval of SPAC listing on the local exchange this year (2021). It should be highlighted that this is not a new concept in Singapore, as the same event has happened over a decade ago. 

In 2010, the SGX defined a SPAC as “a company with no prior operating history that raises capital through an IPO to enter into future unclear business combinations”. It previously had a proposed criterion to allow a SPAC to list should it meet a minimum capitalisation of SGD $150 million, determined from the issued share capital and issued price. Aside from that, the SGX also suggested that a minimum of 95% of the IPO proceeds goes to an escrow account for safeguarding. This is akin to the trust account required by the Securities and Exchange Commission (SEC) in the US. Moreover, the SGX suggested that a cap should be imposed on the distribution of equity interests to be given to a SPAC’s founding shareholders without an equity distribution equivalent to that of public shareholders. In other words, equity interest given to the founding shareholders is similar to a payment before performance, hence the many requirements in place to protect the interest of retail investors.

Unfortunately, there was no substantial progress on the matter following the first public consultation on SPACs in 2010. It is highly likely that the current planned public consultation on SPAC listing on the SGX would dictate its viability in Singapore once and for all.  The SGX has already highlighted the progress and outcome of deeming SPACs as a viable listing vehicle is highly dependent on feedback from relevant industries. The SGX states that have SPAC listings could be a great tool to revive investors’ interest in the Singapore exchange, which failed to attract big traditional IPOs over the past few years, especially in the technology sector. For instance, Razer Inc., which was founded by a Singaporean, Tan Min-Liang, opted to list on the Hong Kong Stock Exchange instead due to greater liquidity.

Aside from that, there are several SPAC IPOs based in Singapore that have proceeded to list on other exchanges, such as Tiga Acquisition Corp and Aspirational Consumer Lifestyle Corp. Moreover, there is also a developing trend of established private companies going public through SPACs. For example, Indonesian tech unicorn Traveloka and delivery giant Grab Holdings have already engaged JPMorgan Chase & Co to explore the possibility of going public via existing SPACs on the New York Stock Exchange (NYSE).

As such, it is safe to say that the addition of SPAC listing on the SGX could help entice sponsors to list their SPAC on the SGX instead. Of course, it all boils down to the verdict of the impending public consultation this year. Relevant frameworks and processes must be in place to be well-received by investors.

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