SGX to allow SPAC listings from Friday, with minimum market cap of S$150m
SPECIAL purpose acquisitions companies (SPACs) will be able to apply for a listing on the Singapore Exchange (SGX) mainboard from Friday, and market watchers said the much-anticipated introduction of listing rules for these corporate shells could potentially liven up the capital markets here.
The new rules, announced on Thursday evening, contain several safeguards first mooted in March - such as minimum equity participation by sponsors at the initial public offering (IPO), to align interests between sponsors and shareholders.
But some rules - such as those for minimum market capitalisation and redemption rights - have been eased compared to proposals in the consultation paper.
SGX Regulation (SGX RegCo) chief executive Tan Boon Gin said the new SPAC framework will give companies an alternative capital fund raising route with greater certainty on price and execution while also "providing investors with more choice and opportunities".
Also known as a blank-cheque company, a SPAC is a shell entity formed by a group of investors - known as sponsors - to raise capital via an IPO. The shell acquires a target business within a set timeframe in a business combination or de-SPAC.
While proponents have hailed SPACs as a more efficient way for companies to go public, the structure has also been criticised as potentially exposing investors to greater risks.
Mr Tan said, however, that SGX RegCo would focus on the quality and track record of sponsors to achieve its goal of having good target companies. They have also introduced requirements that increase sponsors' skin in the game.
Sponsors must have minimum equity participation of at least 2.5 per cent to 3.5 per cent of the IPO, depending on the SPAC's market capitalisation. There would also be a moratorium on sponsors' securities between IPO and de-SPAC, and a further six-month moratorium thereafter. An additional six-month moratorium willl apply for half the shareholdings of some applicable resulting issuers, such as those that are loss-making.
Among the proposed rules dropped from the consultation was a limitation on redemptions at the point of de-SPAC. SGX had earlier suggested that only shareholders against the de-SPAC be allowed to redeem their initial investment. It had also considered making warrants, given at the point of IPO, undetachable from their shares.
Mr Tan said feedback from investors and market participants was that such rules would limit options for investors and reduce the liquidity of their investments. Instead, SGX will allow all independent shareholders to redeem their initial investment while keeping their warrants - but with a maximum dilution from warrant conversion capped at 50 per cent.
"Ultimately there's a role for market discipline," he said. Shareholders would be able to observe the market reaction to business combinations and, if the share price falls below the IPO price, can protect themselves by exercising the right to redemption. SPACs faced with too many redemptions may not be able to proceed if there is a minimum cash condition.
The new listing rules also require a lower market capitalisation of $150 million, down from S$300 million proposed in the consultation paper.
Mr Tan noted market feedback that the deepest pool of Asian targets has market capitalisation of between S$500 million and S$1 billion. "The size of the target is usually three to eight times of the SPAC, so working backwards the appropriate market capitalisation is actually S$150 million."
The minimum IPO price for SPACs would be S$5 per share or unit, down from the S$10 proposed in the consultation.
Market players told The Business Times that the rules are likely to be well received.
Stefanie Yuen Thio, joint managing partner at TSMP Law Corporation, said she was glad SGX took into account views that the original proposed rules were too restrictive.
"The SGX is sending a clear signal that it's engaged with market participants and is very much open for business," she said, adding that the new iteration, which is more similar to US SPAC style, will allow a broader range of companies to list via a merger with a SPAC vehicle.
Feedback was received from over 80 respondents, including financial institutions, auditors and lawyers, "possibly the highest response rate to an SGX consultation in recent times", SGX RegCo said.
Other regional markets, such as Hong Kong and Indonesia, are also reportedly exploring SPACs for their markets.
Tham Tuck Seng, capital markets leader PwC Singapore, said the framework enhances the reputation of SGX as one of the most progressive in the Asia Pacific region, and adds "much needed vibrancy to the Singapore capital markets".
He added that being an early adopter of this alternative capital raising product situated in the Asian time zone, "SGX has now the necessary ingredients to act as a platform for expansion in the Asia-Pacific region for the de-SPAC of Asian growth companies".
The new framework may help boost listing activity on the SGX, which has seen just 3 listings raise S$338 million this year - lagging Thailand, Indonesia and the Philippines.
Associate professor Lawrence Loh, director of the Centre for Governance and Sustainability (CGS) at the NUS Business School, said that the evolution and arrival of SPACs is inevitable, and stock exchanges and capital markets cannot ignore this.
"We cannot afford to let it pass us," he said, adding that regulations need to strike a delicate balance.
Potential sponsors have also expressed interest in raising local SPACs.
Vineet Mishra, co-head for Asean investment banking at JPMorgan, said that sponsors have been talking to them and some are "actively looking and planning SPAC listings in Singapore".
He said: "The interest is not surprising because Southeast Asia as a region, with its early-stage and high-growth tech businesses, has resulted in a lot of interest."
Loke Wai San, managing director at private equity firm Novo Tellus Capital Partners said, the new framework is "well thought through", with good balance.
"It appeals to long-term sponsors, and is something that Novo Tellus would be interested in pursuing," he said, adding that their sectors of focus would be technology industrials although they do not have any targets currently.
Companies in the size of around S$500 million in the US would be a micro cap, Mr Loke noted, but here, it's a good-sized company, and he believes these can get an institutional following.
Abrar Mir, managing partner at healthcare-focused private equity firm Quadria Capital, said they are looking forward to the new rules and evaluating where they would fit into their plans. He noted that there has not been much capital market activity historically for health-tech businesses.
"We certainly hope that in a very similar way that the SPAC market has given new life to technology businesses, growth businesses, that the Singapore market is able to catalyse capital in the same way," he said.
Property portal 99.co is among those that might consider taking advantage of the new SPAC rules. Chief executive Darius Cheung said he would be interested in such a listing, although he said he would still need to wait for more information.
Choosing a SPAC over an IPO provides greater certainty, he said, adding it also allows high-tech growth companies such as themselves to communicate more freely on their roadmap and revenue forecasts with fewer restrictions.
Local investors are also already familiar with 99.co's brand, and the company's current size is also more suitable for Singapore than the US.
"In the US, we will be a small cap company, whereas in Singapore, we would be able to (be at) a certain maturity relative to the rest of the market," he said. "That gives us the ability to get analyst coverage."
SGX RegCo is planning investor education efforts to help retail investors better understand SPACs, including a collaboration with Securities Investors Association (Singapore) (SIAS).
SIAS said in a statement it will appoint research firms to provide independent research on de-SPACs and that it expects to "pose questions and guidance at the IPO of the SPAC, at major announcements of the SPACs, and ongoing at quarterly intervals focusing on disclosures and updates".
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