Singapore introduces SPAC listing, Hong Kong launches consultation

Singapore Exchange (SGX) announced new rules that enable Special Purpose Acquisition Companies (SPACs) to list on its mainboard from 3 September. Hong Kong Exchanges & Clearing (HKEX) has also launched a consultation to enhance its listing regime through rule changes to allow for SPACs.

A SPAC is a type of shell company – sometimes known as a ‘blank cheque’ company ¬– that raises funds through an initial public offering (IPO) for the purpose of acquiring an operating company within a pre-defined time after listing, typically two years. At the time of the IPO, SPACs do not have business operations and do not have assets other than the proceeds from their IPO and the funds required to pay for their expenses.

In a typical SPAC, 20% of the SPAC’s equity will be owned by the sponsors, while the remaining 80% will be offered to investors through the IPO. The funds raised from a SPACs listing will be used for the sole purpose of acquiring a target business, also known as ‘de-SPACing’.

If the SPAC is unable to acquire the target business in time, the SPAC will either search for another target or return the raised capital to its investors. After the acquisition, investors will either redeem their shares and receive any interest accrued or swap their shares in the SPAC for the shares in the acquired business.

Issuance of US-listed SPACs dramatically surged in 2020. The proceeds raised from SPAC IPOs increased from US$10 billion in 2017 to US$82.6 billion in 2020. In the first half of 2021, US-listed SPAC IPO proceeds exceeded the whole of 2020, amounting to US$109.4 billion from 358 IPOs. The SGK and HKEX are now seeking to accommodate SPACS after several Asian investors expressed interest in raising funds through SPACs in the US.

“SGX’s SPAC framework will give companies an alternative capital fund raising route with greater certainty on price and execution. We want the SPAC process to result in good target companies listed on SGX, providing investors with more choice and opportunities,” said Tan Boon Gin, CEO of Singapore Exchange Regulation (SGX RegCo).

“To achieve this, you can expect us to focus on the sponsors’ quality and track record. We have also introduced requirements that increase sponsors’ skin in the game and their alignment with shareholders’ interest.”

An SGX listing under the SPAC framework must have the following key features:

• Minimum market capitalisation of S$150 million
• De-SPAC must take place within 24 months of IPO, with an extension of up to 12 months subject to fulfilment of prescribed conditions
• Moratorium on sponsors’ shares from IPO to de-SPAC, a six-month moratorium after de-SPAC and for applicable resulting issuers, followed by a further six-month moratorium on 50% of shareholdings.
• Sponsors must subscribe to at least 2.5% to 3.5% of the IPO shares/units/warrants depending on the market capitalisation of the SPAC
• De-SPAC can proceed if more than 50% of independent directors approve the transaction and more than 50% of shareholders vote in support of the transaction
• Warrants issued to shareholders will be detachable and maximum percentage dilution to shareholders arising from the conversion of warrants issued at IPO is capped at 50%
• All independent shareholders are entitled to redemption rights
• Sponsors promote limit of up to 20% of issued shares at IPO.

In March, Hong Kong Financial Secretary Paul Chan requested the HKEX and the Securities and Futures Commission (SFC) to consider whether they should allow the listing of SPACs. A public consultation process is now underway on a proposal to enable SPACs to list by the end of 2021.

“As Asia’s premier global listing market, HKEX is always looking for ways to enhance its listing framework, striking the right balance between delivering appropriate investor protections, market quality and market attractiveness. We are currently studying the feasibility of a Hong Kong SPAC framework, and we look forward to consulting the market on this in the third quarter of 2021,” said the HKEX in a statement.

SPACs are a popular fundraising route for private equity or venture capital funds to gain access to public markets. SPACs enable sponsors to pursue larger acquisition targets and can also serve as co-investment vehicles alongside a main private equity fund. For investors, SPACs can be an attractive investment vehicle because the shares can provide more liquidity than a direct investment in a private equity fund or a private portfolio company.

For further information on setting up a SPAC or any other alternative investment structures, please contact us.