Drivers of these entities include a period of ultra-low interest rates, buoyant equity markets, a need for new capital amid the pandemic’s disruption, and the perception that SPACs give private-held business owners a relatively quick and efficient way of exiting their investments.

Singapore’s stock exchange is testing market opinion on how the red-hot sector of Special Purpose Acquisition Companies (SPACs) – aka blank cheque entities – should be listed on its Mainboard.

The SPACs sector has surged massively over the past year; these entities enable investors to back sponsors who then seek a private entity to take public over the stock market. The surge has already prompted worries that the SPAC phenomenon is a bubble. Ultra-low interest rates, and the fact that SPACs allow firms to list on the stock market with relatively light regulatory scrutiny, has driven the boom. A report by Bloomberg (14 March) said that a record $162.4 billion has been raised by more than 600 issuers in 2021, the most ever at this point in the year, data from the news service shows. SPACs account for half of the proceeds. In comparison, just $37 billion was raised in the first three months of 2020.

The Singapore Exchange said yesterday that it is “seeking market feedback on a proposed regulatory framework” for listing SPACs.  

“SPAC listings have attracted interest in major markets due to their speed to market and ability to offer price certainty in valuing target companies. In reviewing the viability of SPACs, we note that recent SPACs developments have brought to the fore certain risks, in particular excessive dilution and the rush to de-SPAC,” Tan Boon Gin, CEO of Singapore Exchange Regulation, said. “We are therefore proposing measures to address these risks, with the aim of creating credible listing vehicles that will increase investor choice and result in successful, value-creating combinations for their shareholders.” 

This news service has been told that ultra-wealthy individuals, including those with family offices, have been involved in some of these SPAC deals, both on the corporate finance, money-raising side, and as investors. These entities have actually been around for a while. Some commentators urge market participants to be careful.

SGX said it wants to balance protection of investors’ interests while also meeting the needs of market players to raise capital. Its consultation said at ideas include a minimum S$300 million market capitalisation and at least 25 per cent of the total number of issued shares to be held by at least 500 public shareholders at IPO; another idea is to have a minimum IPO price of S$10 a share. One proposal is that at least 90 per cent of IPO proceeds placed in escrow pending the acquisition of a target company. The consultation includes a number of other conditions, such as a three-year permitted time frame from IPO date to complete the business combination, and that a business combination must comprise at least one principal core business with a fair market value forming at least 80 per cent of the gross IPO proceeds in escrow.

The surge in SPAC issuance – these entities have been around in the US and other markets for some time - has been fuelled by several factors. Drivers include a period of ultra-low interest rates, buoyant equity markets, a need for new capital amid the pandemic’s disruption, and the perception that SPACs give private-held business owners a relatively quick and efficient way to exit their investments.