Analysis

SPACed out

, Asia Business Law Journal

The US today has a near monopoly over the listings of Special Purpose Acquisition Companies (SPACs). But this could change as many Asian jurisdictions are contemplating allowing SPAC listings in their home markets, fearing many more Asian unicorns will use this suddenly popular tool to list in the US.

SPACs have been around for decades, but gained popularity in 2020 due to the increased volatility in the capital markets with the breakout of the pandemic. The surge was led by high net-worth investors, sitting on enormous amounts of cash, who were attracted to invest in these shell companies, which were backed by big names that could attract other investors. The burning question, though, is whether Asian financial markets have missed the bus on SPACs?

Although Asian unicorns attract investor appetite in the US, despite insane valuations, Asian regulators, namely Hong Kong and Singapore, are still sitting on the fence contemplating whether to list SPACs or not.

Southeast Asia car-hailing service Grab will probably be the largest SPAC to be listed, based on its valuation of US$39.6 billion. Indonesia online travel company Traveloka is in talks with Bridgetown Holdings for an anticipated deal value of around US$5 billion. And Singapore’s PropertyGuru and India’s Flipkart, Droom and Grofers are also all in the mix in the US.

The booming US SPAC is a win-win situation for investors and Asian companies alike. Asian unicorns bet on SPACs as an attractive exit option and a means to reach out to more global investors, while investors wanting a piece of Asia’s digital growth story without taking any risks find unicorns ripe for picking.

Asia being the hunting ground for US-listed SPACs eyeing targets has put pressure on the financial capital markets of Hong Kong and Singapore to allow the listing of SPACs, and thereby ensure Asia does not lose its unicorns to the US.

South Korea and Malaysia are to date the only two Asian jurisdictions that permit the listing of SPACs. India and Japan are also contemplating introducing SPAC listings.

Asian regulators have proposed some stringent regulations that may not sit well with institutional investors. There is a tendency to protect retail investors in Asia, which explains why most Asian regulators are cautious of introducing SPACs, a relatively sophisticated transaction of institutional investors and private equity funds.

Singapore has proposed listing criteria of SG$300 million (US$226 million) for SPACs, with up to three years for them to combine with a target. The idea may be good, but it would mean finding larger targets and convincing targets to list in Singapore. A three-year horizon may not necessarily work well for investors, who may not have the patience to wait that long. When Asia is losing its unicorns to the US, which offers flexibility, this is not the time to change the rules to safeguard retail investors.

While SPACs have targeted companies in Southeast Asia, China and India, Japan did not seem to appear on their radar. SPAC deals are significantly complex and need to be negotiated and agreed on in a very compressed timeline. This could be challenging for Japanese targets, given the language barrier and considering that all documentation and negotiation would be in English

Japan is likely to go slow in introducing SPAC listings. But Japan is unlike Singapore. The Japanese capital market is dynamic in terms of its depth, reach, and sophistication.



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