SPAC invaders

Asia is losing out to the US as its tech giants are wooed by sponsors to list in the US. Can the region’s markets move quickly enough to keep their unicorns and ride the SPAC wave? Freny Patel reports

The US today has a near monopoly over the listings of Special Purpose Acquisition Companies (SPACs). But this could change as many Asian jurisdictions are contemplating allowing SPAC listings in their home markets, fearing many more Asian unicorns will use this suddenly popular tool to list in the US.

SPACs, also known as blank cheque companies, are shell companies that raise funds through IPOs to finance acquisitions, which through the “de-SPAC” process results in a reverse merger. This form of capital raising offers private businesses a fast track to go public, based on future projections.

SPACs have been around for decades, but gained popularity in 2020 due to the increased volatility in the capital markets with the breakout of the pandemic. The surge was led by high net-worth investors, sitting on enormous amounts of cash, who were attracted to invest in these shell companies, which were backed by big names that could attract other investors.

The burning question, though, is whether Asian financial markets have missed the bus on SPACs.

Although Asian unicorns attract investor appetite in the US, despite insane valuations, Asian regulators, namely Hong Kong and Singapore, are still sitting on the fence contemplating whether to list SPACs or not.

Southeast Asia car-hailing service Grab will probably be the largest SPAC to be listed, based on its valuation of US$39.6 billion. Indonesia online travel company Traveloka is in talks with Bridgetown Holdings for an anticipated deal value of around US$5 billion. And Singapore’s PropertyGuru and India’s Flipkart, Droom and Grofers are also all in the mix in the US.

Many companies do not have the patience to wait for a home listing when they need fund infusions, and US investors are eyeing these Asian targets. US-listed SPACs offer certainty and speed.

“In this covid era, a SPAC is a very viable option, even if the target company has to give up a larger shareholding post-combination,” says S Sivanesan, a senior partner at Dentons Rodyk and head of the firm’s corporate practice in Singapore. “At least it can survive, raise funds, and be listed at the same time.”

2020 was a busy year for SPACs in the US, as good businesses were suffering and needed cash. Despite the volatility in the US stock market as a result of the covid-19 pandemic, SPACs raised more than US$70 billion in 2020. In the first quarter of this year, that number jumped to almost US$100 billion. The SPAC market has since been sluggish, as of April, after the US Securities and Exchange Commission (SEC) questioned the accounting principles of some of these shell companies.

Nevertheless, the bet continues to be on SPAC IPOs against traditional IPOs, says the manager of a US hedge fund eyeing the Asian market. Traditional IPOs can get derailed because of the volatility of the stock market, but SPACs offer companies more certainty of the deal being done, he explains.

The booming US SPAC is a win-win situation for investors and Asian companies alike. Asian unicorns bet on SPACs as an attractive exit option and a means to reach out to more global investors, while investors wanting a piece of Asia’s digital growth story without taking any risks find unicorns ripe for picking, the hedge fund manager says.