The essential business district skyline from the Marina Bay Sands in Singapore, on Tuesday, Nov. 3, 2020.
Lauryn Ishak | Bloomberg | Getty Essences
Wall Street’s hottest trend may be headed to Asia.
SPACs — or special purpose acquisition companies — are attracting partisan in Asia and the first wave of local listings will be a test of investor appetite in the region, experts told CNBC.
“I over there’s definitely interest because SPACs, obviously, offer that alternative platform from a traditional IPO,” Max Loh, Asean IPO Band leader at EY, told CNBC in late February.
SPACs are shell companies set up to raise money through an initial public present (IPO), with the sole purpose of merging with or acquiring an existing private company and taking it public.
That treat typically takes two years. If acquisitions are not completed within that time frame, the funds are returned to investors.
SPACs are on referred to as “blank check companies” as investors don’t know ahead of time which private firm will be got with the funds.
Growing interest in Asia
To be clear, SPACs are not new — they have been around since the 1990s.
Some of the modern interest can be attributed to a low interest rate environment which has resulted in a lot of liquidity, said Loh, adding that SPACs the nonce an “attractive proposition.”
Private companies see SPACs as an alternate way to access the capital market, instead of the traditional IPO route, which can be assorted time-consuming and involve greater scrutiny.
A growing number of Asia-based sponsors are backing SPACs.
Asia is also a goal region for acquisition for many of the SPACs — particularly highly valued companies in Southeast Asia that are primed to go communal. Ride-hailing giant Grab is reportedly in talks to go public by merging with a SPAC, according to Reuters.
Data shared by analytics provider Dealogic manifested the number of Asia-focused SPAC companies grew from 0 in 2016 to 8 last year, raising about $1.44 billion. But alone four Asia-targeted SPACs were successfully completed in 2020.
In the first three months of 2021, there have already been six such companies that partake of collectively raised $2.7 billion.
Chew Sutat, head of global sales and origination at Singapore market faker SGX told CNBC last week that SPACs can provide a relatively easy path for companies to raise assets in volatile conditions.
“With a good framework that balances and aligns the interests of investors, companies and sponsors, it could catalyse and buttress SGX’s role in helping regional companies grow and access global investors through Singapore’s capital market planks,” Chew said by email.
Test of investors’ appetite
The explosive growth in SPACs has been centered mostly hither the U.S. where it took the market only three months to outdo its record-breaking 2020. Right rules for SPACs in Asia?
Procuring the right rules and methods to execute SPAC listings would be key for Asian bourses, according to Loh from EY.
When a SPAC raises money, people buying into the IPO do not know what the eventual acquisition target company will be. Instead, uncountable investors rely on the track records of success for the SPAC sponsors to invest the blank check companies.
One concern quantity investors is whether there will be the same level of scrutiny and due diligence performed on target companies as there are in established IPOs, Loh said. Having proper rules and regulations can mitigate that worry, he said.
Loh explained that there isn’t “too much of a unlikeness” between companies going on the IPO route and those going through SPACs, adding that it’s the quality of the underlying house that matters.
China Renaissance’s Pang explained that regulatory uncertainties remain one of the major concerns of taking SPACs in Asia as authorities and exchange have to provide popular and convenient ways for regulation.
“Considering Asian the bourses’ prudent attitude and tightening reviews on shell companies, backdoor listing, reverse takeover or reverse merger, all of which are instruments similar to SPACs that may also allow companies to circumvent IPO scrutiny and regulatory oversight, the bourses are unlikely to fully use SPACs anytime soon,” he said.
Pang also expects Hong Kong to be better positioned than Singapore as an Asia-Pacific SPAC hub because of its “varied and liquid IPO market” that’s on par with New York and London.
Loh added that SPACs will provide another option platform to raise capital, aside from traditional IPOs as well as venture funds and private equity.
“Being a prime SPACs hub makes sense for Singapore because we’re a financial center. The key is the rules, the execution and the quality of companies,” he said.