The excitement surrounding special purpose acquisition companies, or SPACs, has been building up for quite a while.
We first wrote about SPACs back in April when we highlighted them as one of the key trends to watch out for.
A SPAC is, essentially, a blank-cheque company that heads for an IPO with the sole purpose of seeking out another private company to merge with.
Then, earlier this month, Singapore Exchange Limited (SGX: S68), or SGX, announced that it had formulated and approved a listing framework for SPACs.
The bourse operator was the first major Asian exchange to do so, opening up a world of possibilities for fast-growing businesses to list here.
And just this week, it was reported by the media that Singapore could see its first SPAC listing as early as this year, with SGX saying that it could receive its first application within weeks.
What are the implications of this news?
And how should investors react to these developments?
A “SPAC”tacular rush
Several entities have already indicated their interest in seeking a SPAC listing.
Investment manager Tikehau Capital, which owns the manager of iREIT Global (SGX: UD1U) along with City Developments Limited (SGX: C09), is rumoured to be raising as much as S$300 million by listing a SPAC.
Other contenders include Temasek-backed Vertex Holdings, a venture capital outfit, and Turmeric Capital, a Singapore-based private equity firm.
On the other end, co-working operator JustCo, property portal 99.co, and telecommunication company Circles.Life are all open to exploring a SPAC listing.
Interestingly, Stephen Bates, partner and head of transaction services at professional services firm KPMG, commented that the number of players showing interest in SPACs is in the double digits.
He expects at least two to three SPAC listings before the end of this year.
The allure of SPACs
So why exactly are SPACs drawing so much attention?
The allure of SPACs lies in the process — with a SPAC already being a listed entity, private companies that seek to merge with it can enjoy a “fast-track” listing with much less hassle as compared to a traditional, bread-and-butter IPO.
The requirements are less onerous and SPACs are often associated as a vehicle for fast-growing, possibly unprofitable companies to come to market.
Such a structure makes SPACs an interesting and viable alternative compared to raising funds in the old-fashioned way.
Take ride-hailing and food delivery giant Grab, for example.
The Singapore-based start up’s CEO, Anthony Tan, is confident that a merger with Altimeter Growth, a SPAC based in the US, will take place by the end of this year.
SPACs can potentially open up interesting new investment opportunities for local investors by broadening their investment choices.
A virtuous cycle
SGX also stands to benefit from the virtuous cycle generated from the listing of Singapore’s very first SPAC.
Right now, the bourse suffers from moribund trading volumes and has also witnessed a spate of delistings in recent years that has reduced the number of listed companies.
Back in August 2019, there were 736 listed companies on the local bourse.
In two years, this number has fallen to 676 for a drop of 8.2%.
Once a SPAC makes its debut on the exchange, it will trigger a flurry of positive sentiment that may attract further listing aspirants to consider SGX as a suitable fund-raising destination.
The hope is that the perception that SGX is filled with staid, old-school companies will also be permanently banished.
CEO Loh Boon Chye is trying his best to showcase the group as a forward-looking multi-asset exchange that is both progressive and attractive.
SPACs may just be the catalyst needed to spark a much-needed attitude change among the investment community.
Competition heating up
Meanwhile, competition is also heating up for SGX.
Hong Kong Exchanges and Clearing Limited (SEHK: 0388) has proposed changing its rules to allow SPACs to list.
However, its initial proposals come with tighter restrictions than those elsewhere that limit trading in the SPACs.
It remains to be seen if the bourse operator’s proposal will result in serious competition for SGX, but this cannot be ruled out.
Get Smart: Exciting times ahead
All this news makes for exciting times ahead for investors.
The race to become Singapore’s first SPAC listing is on, and there will be history in the making.
Investors can brace themselves for an exciting ride ahead as SPACs look to become a mainstay for SGX.
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Disclaimer: Royston Yang owns shares of Singapore Exchange Limited.