IPOs: SPACs are fine, but keep attracting local home-grown firms

ALTHOUGH the track record of special purpose acquisition companies (SPACs) in overseas markets has been patchy and notwithstanding several governance concerns associated with these firms, the Singapore Exchange (SGX) in September introduced new listing rules to allow this form of capital raising in the local market.

The move comes after a worldwide increase in SPACs over the past 2 years that has prompted some well-known Singapore companies such as Grab and Carousell to explore possible listings via this route in the United States. Sceptics and governance advocates might frown upon the impending entry of SPACs here, but the reality is that the exchange has little choice if it wants to attain the scale and size needed to compete with international peers, given the relatively small domestic economy from which to draw for new listings. Since the abrupt separation of the Kuala Lumpur Stock Exchange from SGX's predecessor The Singapore Stock Exchange in 1990, bourse officials have found it a constant challenge to ensure that the local market has sufficient size, depth and breadth to attract global investors.

The initial response 30 years ago was to continue trading some 200 Malaysian shares on an over-the-counter segment known as Clob International, a strategy which succeeded for a few years, but eventually ended painfully in 1998 at the height of the Asian regional crisis in what has now become known as "the Clob saga". To try and quickly fill the void left by the closure of Clob and to satisfy a government call at the time for companies to "spread regional wings", the need to rebuild market mass led to the admission of hundreds of firms from China, subsequently dubbed "S-chips".