Special purpose acquisition companies (SPACs) have taken the US by storm and now Asia may be looking to replicate this success, with Singapore leading the way.
By Natasha Teja
Singapore is making its bid to be Asia’s first major stock market to list special purpose acquisition companies (SPACs) as the Singapore Exchange (SGX) moves to allow SPAC listings.
SGX plans to launch a formal dialogue on SPACs in its first quarter.
SPACs, or blank check companies, are shell companies set up with the sole purpose of raising funds through an initial public offering (IPO) to acquire an existing company.
As SGX has suffered a string of delistings, it could benefit from having these companies list on the exchange. Listing SPACs may give SGX an edge over its rival market in Hong Kong, which has traditionally opposed such “backdoor listings”, citing concerns that companies can access IPO funds without proper scrutiny.
“I think that the interest in SPACs is being driven by the current volatile conditions that we see,” said Singapore Exchange Regulation Chief Officer Tan Boon Gin said in a media briefing in January.
“Since 2010, we have had the benefit and experience of observing other jurisdictions that have listed SPACs,” he added. “We will examine carefully the hallmarks of success and how we can encourage this structurally.”
SPACs are an attractive IPO option
SPAC acquisition offers companies a shortcut to listing on an exchange, as a traditional IPO route can be expensive and time consuming and is dependent on market conditions. It can take anywhere from a few months to a few years for a company to go public.
Investors often do not know what companies the SPACs plan to marge with. They place their trust in the management board to choose high-growth acquisition targets. With a SPAC, the shell company has a deadline by which it must make its acquisition or return funds to investors, which gives investors a safety net.
Asia shows growing interest in SPACs
SPACs have caught the interest of high-profile Asian investors such as Singapore-based health care entrepreneur David Sin and former hedge fund manager George Raymond Zage. Former Deutsche Bank AG and Lehman Brothers banker Joaquin Rodriguez Torres has raised US$345 million through his SPAC Poema Global Holdings LLC with various investors across the region.
“Asia is the next big treasure trove for SPAC candidates,” Torres told Bloomberg.
This treasure trove could potentially include some of Southeast Asia’s most promising tech companies as they seek public listings in 2021. Ride hailing app such Grab is currently valued at US$14.3 billion. Their competitor Gojek has been valued at US$10 billion.
US funds are targeting Southeast Asia for fast growing companies
US funds see Southeast Asia as the next hunting ground for SPAC targets. This process has been accelerated by two factors. First, the US market is saturated: the SPACs craze has seen them pitted against one another and scrambling for acquisition targets. Second, most SPACs must finalize a deal within a year or risk being dissolved.
“Most growth companies in Southeast Asia are aware of the SPAC exit route and are keen to explore merging with a SPAC,” Sarab Bhutani, head of Southeast Asia investment banking at global investment bank Nomura, told CNBC.
Bridgetown 2 Holdings, a SPAC backed by Peter Thiel and Richard Li, is seeking to raise US$200 million in an IPO in the US. The company is the second blank check company set up by the pair and is focused on acquiring technology, financial services and media companies.
Listing SPACs can benefit Singapore
While many SPACs are looking to acquire targets in Southeast Asia, the US remains the most attractive exchange for companies looking to go public. Bridgetown 2 Holdings is based in the Hong Kong but it plans to list on Nasdaq.
“It would certainly not only provide more exit opportunities for tech companies in ASEAN but also be potentially rewarding for the financial sector in Singapore [in terms of] investment banking fees [and] retaining Southeast Asian unicorns to be listed in the region,” Jeffrey Chi, vice chairman for Asia at Vickers Venture Partners, told The Business Times.
The popularity of SPAC listings on SGX compared to NYSE or Nasdaq will largely depend on regulations. However, with SGX’s consultation still to come, the region has a long road ahead before it forms its own SPAC hub.