VTAC utilises S$10.4 million of interest earned from IPO proceeds to cover listing costs, other expenses

INTEREST earned from proceeds raised in the initial public offering (IPO) of blank-cheque company Vertex Technology Acquisition Corporation (VTAC) has been utilised to cover costs and other expenses.

This was disclosed in an extraordinary general meeting (EGM) circular on Thursday (Nov 9). In the document, VTAC indicated that S$10.4 million in interest earned on the funds placed in the escrow account of the special-purpose acquisition company (Spac) had been drawn down to pay “a substantial portion of the cost” incurred in relation to the administrative expenses of the IPO, general working capital and related expenses, and professional fees for the purposes of identifying and completing the proposed business combination with 17Live.

VTAC had said last month that it had not used any of the interest and income derived from amounts placed in the escrow account as at Sep 30. But it added that it planned to draw down all the interest earned to cover costs and expenses, as is permitted under the Singapore Exchange’s listing manual.

The S$10.4 million interest earned represents around 5 per cent of the IPO proceeds of S$208.03 million placed in the escrow account. VTAC said that 100 per cent of the IPO proceeds are still available for redemption-price computation prior to the completion of the business combination.

VTAC’s chief executive Jiang Honghui told The Business Times that SGX regulations require a Spac to put in 90 per cent of proceeds into escrow, while the remainder could be used for expenses, but VTAC had put in 100 per cent.

“We were never set up to aim to return interest, we were set up to find a successful de-Spac target,” he said, adding that the Spac is not meant to be a yield product.

“We had to take into consideration that we had to use whatever resources we have to make sure that we complete this business combination.”

Jiang also noted that the interest being drawn down is not sufficient to fully cover costs.

According to the circular, the total expenses payable by the enlarged group in connection with the private investment in public equity financing and the proposed business combination, assuming no redemption, amount to S$21 million. The total expenses in a scenario of maximum redemption would be S$19 million.

If the merger with 17Live is successful but shareholders choose to redeem, the redemption price is estimated to be between S$5 and S$5.02 per share.

Investors who choose not to redeem will get special bonus shares, amounting to 10 per cent of the existing shares held at the redemption record date.

Another scenario that the Spac could face would be liquidation, if insufficient investors vote in favour of the deal.

While some success-based fees might not be incurred, there would still be professional fees for lawyers and auditors that are not success-based, which would still have to be paid.

Jiang noted that it would be challenging to forecast the exact liquidation proceeds.

“Liquidation of a listco on SGX is something that is very rare, and you are going to take a long process, and there will be expenses to it,” he said.

In its EGM circular on Thursday, VTAC also said that it had commissioned independent valuer Frost & Sullivan to evaluate the market value of 17Live.

VTAC’s audit committee noted that it viewed Frost & Sullivan as independent of Frost & Sullivan (Singapore), which carried out an independent market research report on the media and entertainment industry for 17Live on Oct 23.

This is because the entities are separate legal entities, and their professional fees are not contingent on each other. The work undertaken by the entities and the conclusions arrived at for their reports are also independent of each other.

The valuer said the equity market value of 17Live as at June 2023 was in the range of US$697.2 million to US$750.6 million, with a median of US$723.9 million. The circular said the valuer used a combination of multiple-based valuation and discounted cash-flow analysis to determine the value of the target company.

VTAC previously said it would acquire 17Live for a purchase consideration of up to S$925.1 million, which works out to around US$682 million.

The valuer assessed that price-to-sales ratio and enterprise value to Ebitda were the most suitable metrics with which to evaluate the target company.

17Live generated operating revenue of US$363.7 million for FY2022, down from US$497.8 million in FY2021. It recorded a net loss of US$51 million for FY2022, reversing the profit of US$109.5 million the previous year.

The target group’s adjusted Ebitda was US$15.8 million in FY22, lower than US$17.4 million in FY2021.

In the first half of FY2023, 17Live reported a net loss of US$118.2 million on the back of revenue of US$151 million. The group had no loans and borrowings as at H1 FY2023.

The EGM for the business combination and the announcement of the level of redemption will be held at 2 pm on Dec 1. Shareholders of VTAC will have until 2 pm on Nov 28 to submit the share redemption form, and 2 pm the following day to submit their proxy form.

The expected completion of the deal would be on Dec 8, when the Spac will trade under the new name 17LIVE Group, if the transaction is successful.

The expected redemption payment date for shareholders who opt to redeem will also be on Dec 8.

Shares of VTAC closed unchanged at S$4.90 on Thursday.