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Singapore aims tighter rules than US to attract blank-check listings

Singapore plans to have more stringent rules with a stronger emphasis on governance than in the U.S. for blank-check companies that seek a listing on the Asian financial center's exchange.

Singapore Exchange Ltd. started a public consultation on March 31 for a regulatory framework for listing special purpose acquisition companies, which are skeleton organizations that launch with the intention of buying and reverse merging with a private company. Under the proposed rules, investors in these companies won't be allowed to cash out as soon as the SPAC merges with a private entity, and sponsors won't be allowed to vote on a business combination, two key departures from the regulation in the U.S.

Instead, the operator of the Singapore bourse is proposing to allow only independent shareholders to vote on merger proposals, which means that sponsors of the SPACs won't be able to use their vote to force decisions on business combinations, Tan Boon Gin, CEO of SGX RegCo, the exchange's regulatory arm, told reporters at a briefing before the consultation was launched.

However, U.S. investors generally enjoy better protection in the overall framework of laws than in many Asian countries.

"Our observations [of the U.S. market] showed that the SPACs that were most successful were the ones which managed two main risks well: first, free riding by investors and excessive dilution of long-term investors, and second, the rush to do a business combination, also known as a de-SPAC," Tan said. "What we propose for our SPAC design aims to reduce these risks."

Analysts, some of whom were earlier consulted on the proposed regulatory framework, said the Singapore market could benefit from a more tightly regulated SPAC market.

SPACs have evolved in terms of investor acceptance and what they are looking for, said Bernard Lim, head of Singapore investment banking coverage at Nomura. "We certainly would like to see more transparency on who are actually contributing to the sponsorship of a certain SPAC," Lim said.

"I don't think stringent governance is a bad thing," he said.

Credible listing vehicles

In the U.S., SPACs have drawn widespread interest on the Wall Street since 2020. Within the first three months of 2021, the number of blank check companies listed in the U.S. had exceeded the 2020 total of 227, according to S&P Global Market Intelligence data. The New York Stock Exchange LLC, which has benefited from the flurry of SPAC listings, told Market Intelligence recently that it intends to increase listings of Asia-headquartered companies, either through SPACs or traditional IPOs. However, the spate of SPAC listings has also raised concerns about them struggling to identify targets, getting financed, or retaining the attention of investors due to the glut.

"Ultimately, we want our SPACs to be credible listing vehicles that result in successful, value creating business combinations for their shareholders. This will increase investor choice and add depth and diversity to our market," SGX's Tan said.

SPACs in the U.S. sometimes tend to have "misalignments of interests" between IPO investors and post-IPO shareholders, and regulators are looking into that, said Stefanie Yuen Thio, joint managing partner at TSMP Law. Some sponsors have proactively structured their SPACs to reduce this gap and, as a result, those tend to trade better in the market.

"This is how a well-regulated market needs to work, checks and balances from both the regulators and market participants wanting to improve the offering," she said. "Having this vibrant ecosystem, not more customized listing rules, is the best way to police the market as a whole."

Another part of Singapore's proposed rules is to limit the right of redemption by shareholders who subsequently vote in favor of a de-SPAC transaction, or a business combination. That is expected to remove the rush to acquire a private company, and also protect capital better.

"In the context of typical IPOs or follow-on fund raising, it is not uncommon for underwriters and investors to expect that major shareholders remain committed to the business, and for the parties to negotiate with major shareholders to provide a voluntary lock-up beyond the regulatory requirements," said Lock Yin Mei, partner at law firm Allen & Overy.

Still, Singapore should not deviate too far from the market's understanding of a SPAC vehicle as they are seeking an alternative listing platform for U.S.-style SPACs in Asia, not a brand new framework, TSMP Law's Yuen Thio said.

"My concern is that while the concerns in the consultation paper are valid, the ship has sailed on the ability to deviate from the U.S.-style SPAC terms," she said. "Europe and the U.K. allow SPACs but have made a very poor showing compared to the U.S."

Fertile ground

Experts believe Singapore can attract companies from Southeast Asia to use the proposed framework to list as the region is seen as a fertile ground for acquisitions by SPACs due to the vibrant technology startup scene and smaller local IPO markets.

Indonesian e-commerce giant PT. Tokopedia previously told Market Intelligence that it is considering a SPAC listing. Rival PT Bukalapak, which is backed by Microsoft Corp., is also considering a SPAC listing in the U.S., according to a March 2 Bloomberg report.

"Many companies want to go to the U.S. because it's a deeper market, but unless you are a company with global business and operations, your listing will get very little attention, and run the risk of being de-listed," Nomura's Lim said, adding: "Companies that have an Asian focus should definitely be top priority targets for SGX."

Meanwhile, Hong Kong, among the world's biggest listing venues by money raised and several times bigger than Singapore, has yet to disclose its plans to allow SPAC listings.

Both the Securities and Futures Commission as well as the Hong Kong Exchanges and Clearing Ltd. are exploring the idea of "suitable listing regimes" to enhance the competitiveness of the city as an international financial center, the government said on March 1. HKEX was reported to target its first SPAC listing by the end of 2021 and will consult the public in June, according to a March 29 Bloomberg report.

A spokesperson for the exchange declined to comment on the news report. "We regularly look at ways to enhance our IPO regime, as part of our commitment to enhance the competitiveness and attractiveness of our IPO market, whilst maintaining market quality. We will update the market of any new initiatives as appropriate," the spokesperson said by email on March 30.