Asia takes center stage for blank-check IPOs as Hong Kong, Singapore join fray

The craze for blank-check companies could pick up in Asia, where more regional startups are likely to explore that route to list, seeking to tap the advantages of familiarity among investors, time zones and less onerous paperwork.

Hong Kong Exchanges and Clearing Ltd., or HKEX, opened a consultation on its proposed rules for special purpose acquisition companies — skeleton organizations that launch with the intention of buying and reverse merging with a private company — on Sept. 17. Smaller rival Singapore Exchange Ltd., or SGX, is reported to be in discussion with potential listing candidates after its SPAC framework came into effect on Sept. 3. Elsewhere in the region, South Korea and Malaysia has allowed blank-check companies to list.

Though the popularity of new SPAC listings in the U.S. may have peaked, there will always be a place for such blank-check companies, said Oi Yee Choo, chief commercial officer at Singapore-based capital markets platform ADDX. "So, it is never too late for HKEX, SGX or another stock exchange to establish SPAC listing rules."

"A SPAC can make good commercial sense as long as there is a credible sponsor who has what it takes to execute on the de-SPAC," Choo said, referring to the requirement of blank-check companies in Asia to typically find a merger target in a two-year period, or return money to investors.

While the operators of exchanges in both Asian financial hubs started talking about SPACs around the same time, Singapore has a head start as Hong Kong's rules may take longer to take shape. The HKEX's consultation with stakeholders is open until Oct. 31 and the framework will take some more time after that to be formalized. The proposed rules in Hong Kong exclude retail participation in SPAC IPOs, another indication of a typically cautious approach as local investors have relatively less protection than in the U.S.

Hong Kong will likely remain the natural capital raising venue for Chinese companies. Hong Kong has hosted 22 IPOs so far in 2021, raising $3.2 billion, while 11 companies raised $1.2 billion in Singapore. Excluding retail investors may not significantly limit the ability of SPACs to raise funds in Hong Kong, given the presence of institutional and family office wealth, Choo said.

Singapore's ambition of becoming a global tech hub will likely have SGX seeking to draw in sponsors from abroad as well as locally. The government on Sept. 17 announced a number of initiatives to support high-growth firms to raise capital in Singapore to complement the SPAC framework.

"A key factor in attracting SPAC sponsors is the level of ease in finding acquisition targets and the recent spate of initiatives could help expand the pool of potential SPAC candidates in Singapore," said Celeste Goh, an analyst with S&P Global Market Intelligence.

Cooling off

Initial public offerings by SPACs were particularly popular in the U.S. in 2020 and in the first quarter of 2021. In 2020, SPAC IPO volumes soared to $77.35 billion in 2020, according to S&P Global Market Intelligence data. Initially, the trend continued into 2021, as it only took 70 calendar days to beat the 2020 total volume. Funds raised in the second quarter dropped to just $17 billion, indicating a possible cooling.

"SPAC listings are cooling off in the U.S. for reasons that are overall good for the market in general, especially for retail investors," said Saurabh Gupta, co-founder and board member of Vistas Media Acquisition Co. Inc., a NASDAQ-listed SPAC.

According to Gupta, a number of transactions have raised an alarm with regulators and investors have lost money. Gupta added that SPAC sponsors need to use the offering to list genuine high potential and growth companies that will continue to grow after their merger and create long term value for shareholders, rather than bring startups and concept stage entities to the table, where the predictability of business growth, revenues and the business model in general are uncertain.

Apart from the deep liquidity, Asian SPAC sponsors were attracted to the U.S. as they could list list much faster compared with a traditional IPO, said Raghu Narain, Hong Kong-based head of investment banking at Natixis Asia Pacific.

Advantage Asia

Listing in the U.S. also has some disadvantages. Asian companies can avoid paying higher fees and the need to conduct roadshows for U.S. investors. Time zones often pose a challenge, as does the possible lack of understanding among investors about the equity story of an Asian company, Narain said.

"An Asian company must be ready to be a public company in the U.S. This means being prepared to meet regulatory requirements like SEC, quarterly reporting, equity research analysts questions and public market scrutiny," Narain said.

Several Asian exchanges have sought to better protect equity investors, a factor that may help Hong Kong and Singapore, said Martin Hennecke, Asia investment director at London-listed investment manager St. James's Place.

"Sponsors will consider, of course, the terms and how favorable they are to them, and they will consider market liquidity as well," Hennecke said. The investment director added that Hong Kong would be a more serious competitor to the U.S. by market liquidity, but with SPAC popularity already in sharp slowdown, Hennecke doubts that the launch of SPAC regimes in either Hong Kong or Singapore will be a massive game changer.

Still, SPACs are likely to remain an important vehicle for companies to raise funds and list, said Scott Denne, U.S.-based senior research analyst at 451 Research, a unit of S&P Global Market Intelligence. "Though the initial rush may have cooled, SPACs are likely to play a larger role in global equity markets than they held in past years," Denne said.

Asia has emerged as the playground for potential acquisitions by SPACs that have already raised funds and now need to close deals with their targets.

As many as 17 Asia-headquartered SPACs are hunting for a target, according to S&P Global Market Intelligence data. These include Bridgetown Holdings, which was formed by billionaire Peter Thiel in partnership with Richard Li, son of Hong Kong tycoon Li Ka-shing. Some Asian companies that are on their way to list in the U.S. via a SPAC include Tim Hortons China, a subsidiary of Canadian coffee chain Tim Hortons, and Singapore-headquartered Southeast Asian property classifieds platform PropertyGuru Ltd.