Analysis: Singapore bets on niche SPAC listings to capture tech boom
06/02/2022 23:00
By Anshuman Daga
SINGAPORE, Feb 7 (Reuters) - After years of struggling to
emerge from the shadows of regional rivals, Singapore Exchange
is looking to establish itself as the hub for blank-cheque
firms, riding on regulatory overhaul, support by state firms,
and a tech boom in its back yard.
Encouraged by the flurry of Southeast Asian tech start-ups
seeking funding and the bourse's revised rules, Singapore could
list up to a dozen special-purpose acquisition companies (SPACs)
within the next 12-18 months, bankers, venture capitalists, and
analysts say.
A key test for SGX SGXL.SI will come when such companies,
also known as blank-cheque or shell firms, have to seal merger
targets within two years, a "de-SPACing" process already
weighing on U.S. deals as hundreds of SPACS chase targets.
Analysts say Singapore faces a challenge to get its
traditionally risk-averse investors interested in a new asset
class, especially after SGX has met with limited success in its
previous attempts to shore up its equity market.
In contrast, large international institutions have turned to
Hong Kong for blockbuster equity listings over the past decade.
While a craze in SPACs has fizzled out https://www.reuters.com/article/usa-spacs-slowdown-analysis-idTRNIKBN2GC1A3
in the United States since early 2021 amid regulatory scrutiny
and poor returns, SGX hosted three SPACs last month https://www.reuters.com/markets/europe/singapore-makes-bold-foray-into-spac-market-temasek-backed-firm-lists-thursday-2022-01-19
in their first major debut in Asia. The attraction is that they
are simpler and typically more rewarding for startups than an
IPO.
"Looking at the response for the first SPACs, the pipeline
is very strong," said Eng-Kwok Seat Moey, capital markets head
at DBS DBSM.SI , joint issue manager on two SPAC IPOs with
Credit Suisse CSGN.S .
Singapore SPACs are likely to chase targets in fintech, tech
and consumer sectors, bankers say. Valuations of targets could
range between S$800 million ($596 million) to up to S$2 billion,
with dealmaking likely as early as this year.
"The size of the opportunity, of younger companies scaling
up and going for listings, is several times what it was many
years ago and over the next decade it'll be multiples of those,"
said Ashish Wadhwani, a Singapore-based managing partner at
IvyCap Ventures, an Indian firm managing about $400 million of
assets.
Last year, fundraising on SGX halved to $565 million, a
six-year low, with just eight listings, Refinitiv data shows.
Underlying Singapore's cautious approach, state investor
Temasek-linked entities featured among cornerstone investors in
two of the three SPACs, all of which were oversubscribed.
Vertex Venture Holdings, a Temasek subsidiary, and one of
Southeast Asia's largest funds, was the first to launch a S$200
million tech SPAC VERTU.SI in January.
CAUTIOUS START
"I expect the exchange and regulators to be quite careful in
all these processes. I don't think they will suddenly just open
up the floodgates and everybody can come," said Chua Kee Lock,
CEO of Vertex, which manages $5.1 billion of assets.
Backers of regional tech and industrial buyout fund Novo
Tellus' S$150 million SPAC NOVOU.SI included a Temasek unit.
European asset manager Tikehau Capital TKOO.PA , which has
two Europe-listed SPACs, also chose Singapore for a S$170
million SPAC listing, with co-sponsors including LVMH chairman
Bernard Arnault.
The latest moves could lead to more global funds playing an
active role in public equity markets in Singapore, which is
already a leading Asian finance and wealth hub.
"It's a chicken-and-egg situation. Maybe if you create this
SPAC market, then more investors will come," Wadhwani said.
SPACs typically offer stock with warrants, which are viewed
as a key way to attract early investors.
Still, for wealthy investors such as Prantik Mazumdar, the
listing of big regional names in Singapore and successful
business mergers of SPACS are crucial before he chooses them
over directly investing in pre-IPO U.S. tech companies.
"Unless there are exclusive opportunities in specific
sectors and differentiated structures that SPACs offer, I'm
probably on the fence," Mazumdar said.
In 2010, SGX deliberated on SPACs but didn't get favourable
market feedback. Last year, it launched a SPAC framework https://www.reuters.com/article/sgx-regulation-spacs/update-1-singapore-exchange-targets-spac-hopefuls-with-relaxed-rules-idUSL1N2Q40ON,
with a focus on scrutinising track record of sponsors. It
required them to invest in their SPACs and unlike in Hong Kong,
SGX allowed participation from retail investors.
"A SPAC listing can definitely help a start-up exit and
raise funds faster with less hassle," said Chandra Tjan,
co-founder of Indonesia-focussed Alpha JWC Ventures.
Last year, Singapore also announced two funds with S$2
billion in capital for late-stage funding and IPOs as dealmaking
surges.
Twenty private companies in Southeast Asia joined the ranks
of those valued at $1 billion or more in 2021, while 53 firms
joined the list of those with near-term potential of being
valued at $1 billion, data from research firm Tracxn shows.
"Fundamentally, the benchmark to be a sponsor in Singapore
is higher, between the capital requirements and the willingness
to embrace independent directors who will decide the de-SPAC,"
said Neil Parekh, CEO of Pegasus Asia PEGAU.SI , the
Tikehau-backed Singapore SPAC.
Singapore's success as a global hub for real estate
investment trusts (REITs) could be a template to build a SPAC
market.
"Singapore has the necessary ingredients to build a healthy
SPACs market, and it can develop in the same way as the REIT
market if we keep a close watch over the quality of sponsors and
maintain overall listing standards," said Mohamed Nasser Ismail,
SGX's head of equity capital markets.
($1 = 1.3426 Singapore dollars)
(Reporting by Anshuman Daga; Editing by Gerry Doyle)
((anshuman.daga@tr.com;))