Rolling Out SPAC Listings in Singapore

The Singapore Exchange has launched special purpose acquisition company (SPAC) listings in Singapore with a new framework on governing SPACs. 

From 3 September 2021, SPACs will be able to apply for listing on the Mainboard of the Singapore Exchange (SGX).

SPACs are essentially shell companies that have been set up by investors, which are also known as sponsors. The sole purpose of a SPAC is to raise money through an initial public offering (IPO) to acquire a target business. SPACs have no commercial operations and their only assets are typically the money raised through the IPOs.

The acquisition of a target business must be done within a set timeframe in a process known as “de-SPAC.” If a suitable acquisition has been completed, the investors can either exchange their shares in the SPAC for shares in the merged company or redeem their original investment from their SPAC shares plus any interest accrued. In the event that no suitable deal is secured, the SPAC will be liquidated with its funds being returned to the investors.

SPAC transactions have been thought to be “more attractive” as an alternative capital fundraising route due to their price certainty as compared to conventional IPOs. A SPAC transaction also allows the target company the ability to negotiate its own fixed valuation with the sponsors. Other advantages include the speed to market and providing target companies with quality investors that may be able to help grow their business.

Introduction of SPACs Listing Framework

After a public consultation earlier this year, the new framework was introduced by SGX, where SPACs must meet the following requirements:

1. Minimum market capitalisation of S$150 million.
2. De-SPAC must take place within 24 months of IPO with an extension of up to 12 months subject to fulfilment of prescribed conditions.
3. Moratorium on sponsors’ shares from IPO to de-SPAC, a six-month moratorium after de-SPAC, and for applicable resulting issuers, a further six-month moratorium thereafter on 50% of shareholdings.
4. 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.
5. 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.
6. 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%.
7. All independent shareholders are entitled to redemption rights.
8. Sponsors’ promote limit (compensation in the form of shares received by a sponsor) is up to 20% of issued shares at IPO.

Changes from Consultation Paper

As compared to the consultation paper in March 2021, the new framework has moved toward aligning sponsors’ interests and shareholders’ interests rather than the previously proposed features that restricted shareholders’ rights. Additionally, the new framework has eased certain rules such as minimum market capitalisation and redemption rights.

A major change from the consultation paper is the lowering of market capitalisation from S$300 million to S$150 million. This change will further act as an incentive and allow a broader range of companies to list on the Mainboard of SGX through a merger with a SPAC vehicle. As compared to fixed quantum minimum equity participation, it has now been altered to percentage-based minimum equity participation where sponsors will have to subscribe to at least 2.5% to 3.5% based on the market capitalisation of the SPAC. This has taken into account feedback provided to SGX that since sponsors typically bear the at-risk capital via the subscription of warrants at IPO, this can provide sponsors with flexibility on both the form and the timing of their capital commitment.

With the introduction of SPACs, there has been growing concern over potentially exposing investors to greater risks. However, SGX Regulation (SGX RegCo) has established that it will focus on the quality and track record of sponsors to achieve its goal of having good target companies. Moreover, the alignment of sponsors’ interests and shareholders’ interests provides sponsors with more “skin in the game.”

The consultation paper first suggested that only shareholders against the de-SPAC may redeem their initial investments and also considered making warrants undetachable from their shares at the point of IPO. The new change has instead established that all independent shareholders are able to redeem their initial investments regardless of their voting and will be able to keep their warrants, which allows for shareholders to observe the reaction of the market to the acquisitions. This provides a protection mechanism for shareholders to exercise their right to redemption should the share price fall below the IPO price.

Conclusion

Given the strong demand across Asia for the Asian-sponsored SPACs that have listed in other exchanges so far, as well as the growing familiarity that the local and regional investor base has with some recent SPACs, this development opens up an exciting new funding avenue for companies in the region.

We wait to see how many investors will take up this new asset class; however, this launch can be perceived as an important step for Singapore’s capital markets to remain globally competitive.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers, who are solicitors of Morgan Lewis Stamford LLC, a Singapore law corporation affiliated ‎with Morgan, Lewis & Bockius LLP:

Singapore
Bernard Lui
Chrystle Kuek