How does Singapore plan to rewrite the rule book for SPACs in Asia?

    • Decision on whether to allow listings of blank-cheque companies will follow market consultation ending April 28
    • Hong Kong’s stock exchange also considering rule changes to allow SPACs to list

    By Chad Bray and Enoch Yiu 

    South China Morning Post, 31 March 2021

    Singapore unveiled its plans on Wednesday to allow special purpose acquisition companies (SPACS) to raise money in the city state as it seeks to be the go-to-market in Asia for one of the planet’s hottest fundraising trends.

    The so-called blank check companies have proven extremely popular in the United States. Still, they have not taken off in Asia following a series of high-profile collapses in Malaysia and South Korea, as well as lingering regulatory concerns about the structure of the investment vehicles.

    However, the frantic pace of deal-making surrounding SPACs since early last year has bourses from Hong Kong to Indonesia racing to rewrite their rules.

    “The feedback [from market professionals] is that an Asian SPAC would be of interest to investors and sponsors because it would be in the same time zone as Asian targets,” Tan Boon Gin, CEO of Singapore Exchange Regulation (SGX RegCo), said in a media briefing. SGX RegCo is a unit of the city’s bourse operator.

    Under the proposed rule changes, SPACs would be required to have a minimum market capitalisation of S$300 million (US$223 million) and would only be able to list on the Singapore Exchange’s (SGX) mainboard. That would be a higher minimum threshold than SPAC listings on the New York Stock Exchange or Nasdaq.

    SPACs would have longer to complete an acquisition: three years instead of up to two years for most US-listed vehicles. But, target companies must meet SGX listing rules, including hurdles in terms of profits, revenues and market capitalisation. These requirements could potentially restrict Singapore-listed blank-cheque companies’ pursuit of unprofitable technology start-ups.

    Singapore will consult market participants starting today and continuing through April 28. The financial hub is also looking to protect investors in SPACs by limiting sponsors’ ability to force approval of a deal and require them to hold an interest in the SPAC for longer after a merger.

    “Good corporate governance and appropriate safeguards will be fundamental to the success of SPACs here,” said Adrian Chan, vice-chairman of the Singapore Institute of Directors. “Just as the quality of companies being acquired must be scrutinised, the quality of sponsors and directors on the boards of SPACs is key.”

    Following public feedback, Singapore regulators hope to have a framework for SPACs in place by the middle of this year.

    In crafting the rules, Tan said regulators took into account investors’ experience in other jurisdictions, particularly in the US.

    “Ultimately, we want our SPACs to be credible listing vehicles that result in successful, value-creating business combinations for their shareholders,” Tan said. “This will increase investor choice and add depth and diversity to our market.”

    It has been more than a decade since the SGX last considered greenlighting SPACs and follows a frenzied 15 months of deal-making that saw blank-cheque companies come to dominate fundraising in the US.

    In 2020, 244 US-listed SPACs raised a combined US$80 billion last year, according to data from Refinitiv. It was the largest amount ever raised in a single year by SPACs in the past two decades. In the first three months of this year, issuers have already surpassed last year’s total, amassing a combined US$90.6 billion in the US and US$92.3 billion globally, according to Refinitiv.

    The proposed rules by the SGX also would only allow investors who vote against a proposed transaction to redeem their shares, as opposed to the US when investors can vote for a deal and opt to get their cash back before the transaction closes.

    Exchanges in Asia and elsewhere increasingly want to get in on the action.

    Hong Kong Financial Secretary Paul Chan Mo-po said in early March that he had instructed the Securities and Futures Commission (SFC) and Hong Kong Exchanges and Clearing (HKEX) to explore suitable listing regimes for SPACS to ensure the competitiveness of the city’s financial markets while continuing to safeguard the investing public.

    The SFC and the HKEX are expected to complete their review of SPACs within the next few months, a government source told the Post. Any change would require sufficient investor protection, said the source, who was not authorised to discuss the matter publicly.

    “We do not have anything to add at this stage to what the government has said on this matter,” an SFC spokesman said on Wednesday.

    An HKEX spokesman said the bourse operator regularly reviews ways to enhance the city’s initial public offering regime to enhance the competitiveness and attractiveness of the city’s financial markets.

    “We will update the market of any new initiatives as appropriate,” the spokesman said.

    The United Kingdom’s Financial Conduct Authority said on Wednesday it also planned a consultation on adjusting its listing rules to require enhanced disclosures and bring its regulations more in line with the US to better accommodate SPACs. One change would be waiving a requirement under current UK rules that blank-cheque companies suspend their listings when they announce an acquisition target.

    Hong Kong already allows so-called Chapter 21 companies to raise money in the city, but those investment vehicles must maintain a diversified portfolio and are limited in how much they can invest in a single company. In contrast, SPACs can acquire a company and then the target firm can go public through a reverse merger within a set time frame.

    The building pressure to allow SPACs to list in Hong Kong comes as several well-known Hong Kong financiers have gone to the US market for their own listings. Bridgetown Holdings, backed by PayPal founder Peter Thiel and Richard Li, tycoon Li Ka-shing’s younger son, raised US$595 million last October on the Nasdaq market. Adrian Cheng Chi-kong, the third-generation scion of New World Development’s Cheng family, is planning to raise up to US$345 million with a Nasdaq-listed SPAC later this year.

    There have been a lot of enquiries about launching SPACs in the city, according to Johnny Lam, deputy president of CPA Australia’s China region and a partner at PwC.

    Hong Kong and Singapore are exploring SPAC listings because of concerns that good companies in the region will shift their listings to the US “if we do not have the platform in place for them to list here”, Lam said.

    It is likely that both bourses will require target companies that merge with SPACs to meet their listing rules before they can list in Hong Kong or Singapore.

    “The regulator can also make sure the SPAC’s owners and management are fit and proper persons,” he said.