SGX plans listing of special purpose acquisition companies but with safeguards

This makes the SGX the first major Asian exchange to consider SPAC listings.
This makes the SGX the first major Asian exchange to consider SPAC listings.ST PHOTO: DESMOND WEE

SINGAPORE - The Singapore Exchange (SGX) is asking for market feedback on its plans to allow the listing of special purpose acquisition companies (Spacs), which have become popular for the purpose of acquiring an existing company.

This makes SGX the first major Asian exchange to consider Spac listings.

The consultation on a proposed regulatory framework will be open until April 28.

A Spac - also known as a blank-cheque company or a shell corporation - has no commercial operations and is listed on a stock exchange with the purpose of acquiring a private company. This means it is listed without going through the traditional initial public offering process.

Spac listings have attracted interest due to their speed to market and ability to offer price certainty in valuing target companies.

But they are also blamed for practices such as excessive dilution of the value of existing investors' shares and their proportional ownership of the company and the rush to do a business combination also known as a de-Spac.

"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," said Mr Tan Boon Gin, chief executive of Singapore Exchange Regulation (SGX RegCo), on Wednesday (March 31).

SGX said it is seeking a balanced regime that effectively safeguards investor interests against concerns posed by the unique features of Spacs while meeting the capital-raising needs of the market.

Feedback is sought on aspects such as broad admission criteria, conditions for founding shareholders, management teams and controlling shareholders and business combination requirements.

Mr David Gerald, president and CEO of Securities Investors Association Singapore (Sias), said the popularity of Spacs in recent years could be judged by the fact that within the first three months of this year alone Spac IPOs in the United States have outnumbered all of 2020 IPOs.

"Singapore, as a leading financial hub, cannot avoid it. There will be interest from some, especially the sophisticated investors," he said.

But Mr Gerald warned that retail investors must first fully understand this investment to know what it entails and whether it is suitable for them, before making the decision to invest.

Sias will engage SGX and the Monetary Authority of Singapore to ensure that there are sufficient safeguards in terms of transparency and governance to help all investors make an informed decision.

"There has to be efforts taken to educate, especially the retail investors, so that they can with knowledge determine the suitability of this investment for themselves," he noted.

The SGX is proposing some divergence from the usual Spac structuring.

For example, Spacs usually offer shares with warrants attached, which entitle them to buy shares at a certain price, becoming valuable if the underlying stock price goes up.

The SGX is proposing that any warrant or other convertible securities issued with the ordinary shares of the Spac at an IPO must be non-detachable from the underlying ordinary shares of the Spac for trading on the local exchange.

Other SGX measures include a minimum equity participation by founding shareholders and allowing Spac mergers to be completed within three years instead of the typical two years seen in major markets like the US.