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Singapore and Hong Kong prepare to join the SPACs boom

11 May 2021

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Southeast Asia looks likely to approve SPACs this year. But, ask Cliff Pearce, Global Head of Capital Markets, and Christopher Wong, Commercial Director of Capital Markets in Hong Kong, will investors wait for local listings or head for established SPACs exchanges?

Financial market regulators in Singapore and Hong Kong, who have kept a close watch on US and European Special Purpose Acquisition Company (SPAC) markets are poised to make a move – the “blank cheque companies” look set to be accepted on the exchanges of both cities, with Singapore listings occurring as early as this summer.

Singapore is moving faster than Hong Kong, but the big question is whether the region’s unicorns will have the patience to wait for a home listing. Or will they prefer the certainty and speed of established SPACs exchanges abroad?

In recent weeks the Escrow Services and Global Capital Markets teams at Intertrust Group have seen increased inquiries from seasoned US SPACs issuers looking to target assets in Asia.

But even if Singapore and Hong Kong regulators do allow SPACs activity from the summer, it is hard to estimate numbers.

The Singapore Exchange (SGX) consultation on SPACs closed at the end of April and the resulting framework is expected to be finalised in June. So we think it is realistic to expect an uptick in listings in the second half of this year.

Regulatory changes proposed in the US may also have an effect, although Singapore’s rules differ from existing SPACs markets. For example, it is proposing a business combination period of up to three years and will require an operational presence in Singapore.

Tech giants ready to buy-and-build

Market commentators expect Southeast Asia’s tech giants to buy up start-ups with the funds gained when they go public. Bankers in particular see SGX as a magnet for Asia-based acquisition vehicles listed in the US, such as Hong Kong-based Bridgetown Holdings, a SPAC backed by Hong Kong businessman Richard Li and Silicon Valley investor Peter Thiel. It raised $595m in a US IPO in October – the biggest SPAC focused on Southeast Asia at that time.

Unicorns in the region are already surpassing US SPACs expectations, notably the $40bn SPAC combination between US-based Altimeter Growth Corp and Singapore-headquartered Grab – an international car hailing, financial services and food delivery business. The largest SPAC yet to come to market, it intends to list on Nasdaq.

Indonesia’s Traveloka is also in advanced talks to go public by merging with Bridgetown Holdings, in a deal valuing the online travel company at about $5 billion. Backers include Expedia Group Inc, Rocket Internet, East Ventures, Richard Li’s FWD Group Ltd and Singapore’s GIC.

It is certainly welcome that sophisticated retail investors in Asia are waiting to pounce on SPACs opportunities they have previously been able to enjoy only through US listings. But the Singapore and Hong Kong exchanges and regulators are anxious to avoid a SPACs boom and bust.

And Hong Kong, one of the world’s top IPO destinations alongside New York and Shanghai, has been more sceptical about non-IPO listings, according to an S&P Global Insights report.

It found that Hong Kong Exchanges (HKEX), has tightened its rules on backdoor listings and shell activities in recent years. Regulators in Hong Kong and mainland China have been simplifying listing procedures and requirements, making some companies less keen to follow the SPACs route.

SPACs could easily be overshadowed by other options. Hong Kong now allows pre-revenue biotech companies to list on the main board, and the Shanghai

Stock Exchange Ltd’s science and technology innovation board has attracted high-growth start-ups.

“The popularity of these trading venues also means that companies could have more favourable valuations, a lack of which is always a key reason for companies choosing the SPACs route instead,” according to S&P Global Insights.

Taking the gaming out of SPACs

Regulators in Singapore and Hong Kong want to take the gaming out of SPACs, creating a process that is transparent, stable and fair for retail investors. For this reason, both are considering majority voting rights and liquidity routes so investors aren’t forced to accept a private-investment-in-public-equity (PIPE) solution if the SPAC sponsors want to raise additional capital for a business combination. This could rack up fees.

Hong Kong’s consultation paper will be released in the middle of this year, about the same time as Singapore’s finalised framework. This gives Hong Kong a couple of extra months to learn lessons from consultations in other SPACs markets.

We expect very similar investor protections in Singapore and Hong Kong, to remain competitive. Both will be keenly aware that US listings constitute about 97% of SPACs activity. Whether Singapore provides more favourable conditions remains to be seen, but it currently seems hungrier for SPACs listings than Hong Kong.

Democratisation of SPACs could ensure their emergence in new markets

We believe that once SPACs are commoditised, they will become more acceptable as an exit option for private equity-backed portfolio companies and other investment groups, such as Family Offices, in Asia and elsewhere. But while they will become another useful tool, in our opinion, they will never completely replace traditional IPOs.

However, the democratisation and reporting transparency of SPACs could ensure their longevity across all marketplaces and investor profiles. Singapore and Hong Kong investors may reap the rewards of their regulators’ patience.

Why Intertrust Group?

We are the ideal partner for SPAC sponsors and their merger targets in Asia.

  • On-the-ground expertise in Hong Kong and Singapore, a growing regional hub, including the new and highly popular Variable Capital Company (VCC) in Singapore
  • One of the largest administrators in the market, established for more than 30 years
  • End-to-end suite of administrative, escrow and settlement services; range of additional corporate solutions
  • We can navigate and manage complex regulatory and reporting requirements that grow by about 30% a year
  • State-of-the-art in-house proprietary technology makes it easy even for new SPVs and managers to establish in Hong Kong and Singapore
  • A growing track record of SPAC transactions, including the first ESG-focused SPAC listed in Amsterdam (ESG Core Investments)