Personal Finance

US SPAC Frenzy inspires a reboot in Asia


SPACs have lost some luster in the United States, but the Singapore and Hong Kong stock exchanges are betting that the vehicles will increase their appeal to global investors and startups in the region.

The two Asian financial centers have been moving forward with competitive plans to allow special-purpose takeover companies to list, raising money and going public before finding companies to merge with. Singapore released its SPAC rules in September, while Hong Kong is seeking public comment on its proposed regulations until the end of this month.

Both exchanges seek to perform a difficult balancing act, providing the flexibility that SPACs offer while ensuring the protection of investors’ interests.

In the US, the boom in SPAC issuance has largely faded. The share prices of many publicly traded companies have plummeted and regulators are taking a tougher stance.

Asian exchanges seek greater scrutiny of the companies that plan to raise money and the companies with which they merge.

“I call this SPAC 2.0,” said Sung June Hwang, founder and CEO of Atlas Growth Acquisition Ltd., a SPAC expected to raise $ 110 million on Nasdaq. “Both Hong Kong and Singapore have had the hindsight of looking at the development of SPAC in the US, which is very, very valuable,” he said.

Hwang added that while many big-name professional firms and investors have sponsored and managed New York-listed SPACs, the recent boom also attracted less experienced celebrities, sports figures and investors.

Since neither Hong Kong nor Singapore had previously allowed them, SPACs sponsored by Asian investors have also flocked to the US to raise funds. Since the beginning of last year, 35 of these SPACs have raised a total of $ 6.8 billion by listing on US stock exchanges, according to Dealogic.

US-listed SPACs, whether sponsored by Western or Asian investors, have also pursued acquisition targets in Asia. Fifteen mergers involving Asian companies have been announced during the same period, for a total value of $ 52.8 billion, according to Dealogic. The largest by far is a pending $ 40 billion deal involving private transportation giant Grab Holdings Inc.

“At some point, it would be no surprise if regulators started thinking, ‘Why don’t we handle some of the action ourselves?’” Said Johnny Lim, director of Resource Law LLC, a Singapore law firm that operates in an alliance with the US law firm Reed Smith LLP, in reference to the SPAC rules of the exchange.

Last month, the Singapore Stock Exchange published rules to include SPAC on its main board.


Photo:

roslan rahman / Agence France-Presse / Getty Images

Industry watchers say a series of deals is likely to follow. Michael Marquardt, Asia CEO of IQ-EQ, a firm that services mutual funds, said clients are showing a lot of interest in launching SPAC in Asia.

John Lee, Vice President and Head of Global Banking Greater China at UBS Group AG, said: “In general, everyone is quite interested in seeing the launch of SPAC in Hong Kong. They also hope that the query will result in some requirements being refined to allow for easier implementation. “

Hong Kong, which has spent years cleaning up the traps created by backdoor listings, has proposed some of the strictest rules on SPACs and established “investor suitability” criteria.

“It is good to see that Hong Kong and Singapore are learning from the United States to raise that level” in investor protection, said IQ-EQ’s Mr. Marquardt.

“But it’s about getting the balance right,” he said. “I don’t think investors should rely solely on regulators. They have their own responsibility. “

By far the largest merger of a US-listed SPAC with an Asian company is a pending $ 40 billion deal involving ride-sharing giant Grab Holdings.


Photo:

Dimas Ardian / Bloomberg News

Hong Kong’s proposed rules would restrict access to SPAC shares to wealthier institutions and individual investors until the vehicle has been merged with a target company. In the US, small investors have sometimes accumulated in SPACs before deals are announced or completed, driving large, though often unsustainable, gains in stock price.

The Hong Kong Stock Exchange also said that at least one entity promoting a SPAC would have to have a financial or securities license from the city’s market regulator. The United States has no such requirement.

Targets seeking to merge with a SPAC must also follow a procedure similar to a Hong Kong IPO, hiring an investment bank to conduct due diligence and guide the company through the listing process.

September 29, 2020: Private companies are flooding into Special Purpose Acquisition Companies, or SPACs, to bypass the traditional IPO process and get a public listing. WSJ explains why some critics say investing in these so-called blank check companies is not worth the risk. Illustration: Zoë Soriano / WSJ

The auditors and these investment banks will also need to approve the financial forecasts provided by the targets. Given the strict liability rules in Hong Kong, that could limit companies’ ability to use long-term projections to defend elevated business valuations. In the US, this has been one of SPAC’s main selling points on IPOs.

The Hong Kong Stock Exchange also plans to require that at least 15-25% of the company’s market value post-merger comes from an investment in PIPE by independent investors from the SPAC team. PIPE stands for private investment in public capital.

Many SPAC mergers have included such financing, but it is not required in the US or Singapore, and US PIPE investors are not always independent.

PIPEs could attract China-focused private equity funds, which have been reluctant to invest in private startups due to market and regulatory uncertainty, said Marcia Ellis, a Hong Kong-based partner at the Morrison & Foerster law firm. “It is a fairly safe investment compared to investing in a private company where you do not know when the exit will come,” he said.

Write to Jing Yang at [email protected]

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