1. Special Purpose Acquisition Company (SPAC) has been around for decades but only grown in popularity in recent years. The SPAC fever has died down in the US after a crazy run up in early 2021 and Singapore are now launching the first batch of SPACs on SGX.
2. Why SPACs and why now? The economy is undergoing a restructuring – it is becoming more tech-driven and increasingly powered by intangible assets. Singapore have been a hotbed of tech startups but they are not listed on the SGX.
3. SGX has lost a couple of big name tech companies who chose to list in overseas markets to tap a wider investor base. For e.g. Sea and Razer. PropertyGuru is merging with a SPAC in the US.
4. It is a catch-22 situation whereby if SGX does not have big name listings, it would not be able to attract investors. Because of a lack of liquidity and trading volume, big names don’t want to list on SGX. Hence, SGX wants to get into SPACs to rejuvenate the buzz and create interest in the new generation of tech companies. It is a step to stay relevant and attempt to break the catch-22 deadlock.
5. Tech startups benefit from SPACs because it is another avenue for them to raise funds. These startups are usually loss-making and do not have enough assets to collaterize for loans. Hence, selling equity has always been the main way to raise funds. Tapping on the capital markets is often not possible because the listing rules are too stringent for their type of businesses.
6. Here comes SPACs where it is essentially a reverse takeover play – the SPAC list first and do an acquisition of a private company thereafter, bypassing the requirement of the target company having to undergo listing requirements.
7. This should further enhance Singapore as a tech startup hub in the region. It is important because we want to continually attract talents to build the next generation of businesses here.
8. As for retail investors, early stage investing are often out of reach. The deal flows usually go to institutions and accredited investors. But SPACs made it possible for retail investors to partake in such investments.
9. It comes with a price though. Retail investors have the work cut out for them to understand the venture game. Moreover valuation of SPAC’s target companies are often inflated, making it harder for retail investors to get a good deal.
10. I speculated that Temasek has to take the lead to launch SPACs in order to spur interest in SGX. Indeed it came true. Vertex Technology Acquisition Corp is backed by Temasek’s subsidiary Vertex Ventures. It is raising $200m with $111m already raised from cornerstone investors that included other Temasek’s subsidiaries Venezio Investments and Fullerton Fund Management.
11. Only 600,000 units (with 180,000 warrants attached) are set aside for retail investors. It is priced at $5 each which means retail tranche would be worth just $3m. Subscription of the units is now open and will close on 18 Jan 2022, 12pm. It will start trading on 20 Jan 2022, 2pm.
12. The second SPAC is Pegasus Asia, backed by European asset manager Tikehau Capital and the family office of Bernard Arnault (LVMH boss). Issue price is $5 too but with 0.5 warrant for every unit. It is raising $150m with only 1m units for retail, which works out to be about $5m. Offer is closing on 19 Jan 2022, 12pm and it will start trading on 21 Jan 2022, 9am.
13. The third SPAC is Novo Tellus Alpha Acquisition, backed by a buyout firm Novo Tellus with Loke Wai San as the CEO. He is the chairman at AEM, one of the most stellar SGX-listed stocks in recent years. It is raising $150m with only $2.9m available for retail investors. Temasek-owned Venezio is also one of the cornerstone investors. Each share is attached with 0.5 warrants.
12. My view is that the first few SPACs cannot afford to fail, else it would dent the investors’ and companies’ confidence to do further SPACs. SGX and the sponsors will work together to make sure these listings are successful.
13. Judging from the tiny retail tranche available, there will be oversubscription for the units. They should also trade slightly higher than their issue prices. I think these SPACs have the acquisition targets in mind already and I expect the acquisitions to be announced not long after the listings.
