It’s a go, finally. Following months of sending up trial balloons, followed by a formal public consultation, the Singapore Exchange has introduced new rules for so-called Special Purpose Acquisition Companies (SPACs) to list on the Mainboard.

The new rules kick into effect right away on Sept 3 — presumably to catch interest in such deals — and before more local or regional companies choose to go public via the SPAC route — in the US.

The highest profile company to do so is self-styled super app Grab, which announced its deal with US-listed Altimeter Growth. The merger, which values the combined entity at around US$40 billion ($53.8 billion), is set for completion by the end of the year.

Even before the new rules kick in, there has been reports of interest from several entities here. Vertex Ventures, a subsidiary of Temasek Holdings, is reportedly already working with advisers to be the first to list a SPAC in Singapore.

“The appetite for Asian targets is strong as this region has remained resilient despite global uncertainties and developments. SGX’s SPAC listing platform is ideal for Asian investors and Asian targets,” says Mohamed Nasser Ismail, head of equity capital markets at SGX.

“We are actively engaging with potential sponsors and are expecting a robust pipeline of Asian-focused SPACs,” he adds.

One indication of the interest in SPACs can be seen by the number of responses from the public consultation.

According to SGX, with around 80 responses, this is “possibly the highest response rate to an SGX consultation in recent times”.

The respondents range from the largest financial institutions to individuals commenting in their personal capacity. Overseas market professionals such as Zhong Lun Law Firm, one of China’s largest private legal practices, weighed in as well.

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The public consultation was necessary to help SGX refine the rules such that enough safeguards for investors are in place yet leaving enough room for market players so they do not feel stifled by onerous rules.

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

“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,” he adds.

Lower market cap

Under the newly announced SPAC listing framework, the minimum market capitalisation is $150 million. This is half that of the $300 million threshold mooted at the consultation phase.

According to SGX in its response paper to the consultation, the $300 million floor was seen as a way to ensure better quality target companies. A few respondents had gone as far to suggest a threshold of $500 million but many more respondents disagreed, with suggestions of as low as $50 million although most were in favour of $150 million.

Typical SPAC deals involve acquisition targets between three to eight times the size of the SPACs and the $150 million market cap threshold for SPACs to list means they will be going for targets with a valuation of at least $450 million.

According to feedback, the sweet spot of deal sizes in Asia ranges between $500 million and $1 billion. Realistically, that gives SGX the most addressable market to tap on and not the multi-billion deals that naturally gravitate to the US.

Another notable rule is the deadline of when the so-called “de-spac” or acquisition of a target company must take place. Under US rules, SPACs typically have two years to find a target and if not, they are to delist and return the funds to shareholders. SGX will give two years, plus an extension of 12 months subject to fulfilment of prescribed conditions.

De-spac can go ahead if more than half the independent directors approve the transaction and more than 50% of shareholders vote in support of the transaction. However, Stephen Chen, a private investor, feels that for a decision that is the existential purpose of a SPAC, the entire board should be in sync. “Maybe it is a chance for the dissenting IDs to demonstrate their independence and put on record their views.”

To ensure that SPAC sponsors align their interests with other investors and not just there to do a quick turnaround deal, there are a couple of requirements to make sure they stay put for a period of time.

For one, there’s a moratorium on sponsors’ shares from IPO to de-SPAC, another six-month moratorium after de-SPAC and for applicable resulting issuers, a further six-month moratorium thereafter on 50% of shareholdings.

Sponsors are also required to subscribe to at least 2.5–3.5% of the IPO shares, units or warrants depending on the market capitalisation of the SPAC. In another key difference between what will be introduced versus what was mooted, warrants issued to shareholders at time of IPO can be “detached” and traded separately so as to give them more flexibility and liquidity.

‘As soon as we can’

Loke Wai San, of private equity from Novo Tellus, which is reportedly mulling a SPAC listing, finds the framework very encouraging. “We are definitely interested and considering,” he tells The Edge Singapore.

He agrees that the $150 million minimum market cap requirement is the right threshold for the niche that SGX is eyeing to win over. “We will be working on it as soon as we can,” he says.

Wong Su Yen, chairman of the Singapore Institute of Directors, says her organistion supports this move.

"We will work with our partners in the areas of legal, audit and capital markets to help independent directors appreciate how the board governance of SPACs differs from other forms of listed entities, so they can perform their director roles and responsibilities," says Wong.

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In a statement, the Monetary Authority of Singapore notes that the SPACs framework positions SGX as a regional first-mover in serving Asia’s fast-growing new tech and new economy companies’ financing needs while providing safeguards to help retail investors understand the unique features of SPACs.
"The new listing rules for SPAC is an important step in the right direction that will place Singapore in the lead among the exchanges in Asia Pacific, adding a new growth engine for listings for the SGX," says Tay Hwee Ling, Disruptive Events Advisory Leader, Deloitte Southeast Asia and Singapore.


SIAS to appoint independent researchers

The Securities Investors Association of Singapore (SIAS), meanwhile, plans to play an active role. It plans to support SPACs by commissioning independent reports upon the introduction of each de-SPAC deal, to give retail investors better-informed voting decisions.

The research firms will be from a panel which SIAS will administer. Among others, the research firms will help to evaluating the information on the proposed de-SPAC transaction including the attractiveness of the target business; discuss the pros and cons of the transaction, including implications to investors; make peer group price and valuation comparison; and do scenario analysis for share redemption and warrant and convertible security exercise.

“For some time now, SIAS has raised the concern of companies appointing financial advisors for their major corporate actions such as mergers and acquisitions, rights issues and de-listings,” says SIAS’ founder, president and CEO David Gerald.

“This approach for an independent body to appoint a financial advisor to guide retail investors will raise the independence and transparency of the process while providing the necessary guidance. This should also provide more comfort to investors investing in SPACs,” he adds.

Gerald notes that as with any new product introduction, there is a fine line between regulation and over regulation. He hopes that the education and market initiatives by SIAS will help improve transparency and disclosure to enable investors to make an informed decision, within Singapore’s caveat emptor (buyer beware) regime. “However, all stakeholders will need to play their part for SPACs to succeed in Singapore,” he adds.