Singapore and Hong Kong start-ups are sidestepping their home stock exchanges to merge with special purpose acquisition companies (Spacs) in the US, as fundraising vehicles in the Asian financial hubs have yielded little on their exit plans.
Information from financial data provider Refinitiv shows that at least nine Singapore and Hong Kong companies this year have announced plans to go public with Spacs listed in the US, despite the cities offering a number of these shell companies since the first quarter — none of which has merged successfully with a target business.
Spacs, also known as blank-cheque companies, provide promising companies with an alternative way of going public. They raise capital through an initial public offering then acquire or merge with an existing business, bringing the target to public markets without having to go through the traditional — and time-consuming — process of listing.
This usually means a more straightforward and quicker path for companies to go public, as Spacs offer the means to skirt an often-arduous vetting process associated with traditional IPOs.
American stock exchanges have received plenty of attention from investors over the high volume of Spac activity generated in the past few years, catching the eye of bourses in Asia that want to ride the wave.
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Refinitiv’s data showed that across the Asia-Pacific region, at least 28 Spac deals have been announced in the first nine months of this year worth a total of $23.4bn. However, none of them involved Spacs from the Singapore or Hong Kong exchanges.
“With Spacs in Singapore and Hong Kong, I think we are a little bit late to the whole overall theme,” said Michael Wu, senior equity analyst at investment research company Morningstar. “The other implication would be just more generally [that] the IPO in the primary market has been quite challenging over the last year and that will likely persist.”
Many Spac deals have favoured high-flying upstarts in the tech space, with such companies seen as having high growth potential, which naturally excites investors. This segment of business deals boomed in the early days of the Covid-19 pandemic, as tech companies saw a surge in demand for digital services when people were in lockdown.
Sponsors of Spacs — many of which are venture capital outfits — typically receive investor support based on their reputation, as backers do not know what target a blank-cheque company will eventually merge with.
By backing Spacs, investors have the opportunity to buy stakes in lucrative tech start-ups as they go public. One prominent example is the listing of Singapore ride-hailing and food delivery unicorn Grab in December last year. Grab merged with a Nasdaq-listed Spac called Altimeter Growth.
But as some investors discover, bets on Spacs do not always pay off as handsomely as they would like. Grab’s introduction in the US market via a Spac, for instance, saw its shares dive nearly 21 per cent at the end of trade on the first day. Its market capitalisation was about $34.6bn as trading closed, falling short of the $40bn expected by Altimeter and underlining the risks investors take when betting on big tech names that do not live up to their promise.
Russia’s invasion of Ukraine this year has contributed to geopolitical instability, soaring energy and food prices, and monetary tightening by several central banks to rein in inflation. This has been bad news for Spacs, as in times like these investors tend to shy away from the risky bets associated with tech start-ups that grow quickly but, such as Grab, sacrifice steady profits to do so.
Refinitiv’s data showing $23.4bn worth of Spac deals in the Asia-Pacific region in the first three quarters of this year seemed large but was still a 47.6 per cent decline in value from a year ago.
Anish Ailawadi, global head of investment banking practice at analytics company Acuity Knowledge Partners, noted that “the golden period” for Spac IPOs and mergers — mainly during the first half of 2021 — has passed, with flagging interest in the region also reflecting the global scenario.
Ailawadi noted as well that the minimum market capitalisation in the US for Spacs is lower than in Hong Kong and Singapore, which have set more stringent benchmarks, leading smaller companies to merge with blank-cheque companies in America.
The minimum requirement is $127mn for Hong Kong Spacs and $106mn for their Singapore counterparts, compared with a minimum of $50mn for a Nasdaq listing and $100mn for a New York Stock Exchange listing in US.
“Valuations in the US are generally higher than in Asian markets. Most private companies prefer US-based Spacs over those from other regions,” Ailawadi told Nikkei Asia. “Similarly, US-listed companies attract better analyst coverage, which translates into higher institutional investor interest.”
Hong Kong’s Hypebeast, a digital media and ecommerce company, announced its plans for Nasdaq in April by signalling its intent to merge with Iron Spark I Spac to the tune of $221.8mn — the sole player from Hong Kong to do so via a blank-cheque company this year, Refinitiv’s data showed. Hypebeast opted for a dual listing, with its other presence on the Hong Kong bourse.
The data showed that Singapore had eight counterparts unveil similar Spac plans — seven on Nasdaq and one on the NYSE. In August, for instance, financial technology platform Seamless Group announced a deal valued at $400mn with an NYSE-listed Spac called InFinT Acquisition.
More recently, the city-state’s Asia Innovations Group (ASIG), which operates a platform designed for mobile gaming and ecommerce, announced in late September it would combine with NYSE-listed Magnum Opus Acquisition — a deal representing a total equity valuation of $2.5bn and billed as the largest consumer-internet Spac merger of the year to date.
“The proposed merger will combine the best of macro growth in emerging markets and the benefits of being a publicly listed company in the US to transform ASIG into a global mobile powerhouse,” said ASIG chief executive Andy Tian. “ASIG has built a unique, well-diversified global business in the core verticals of social, games, ecommerce and payments.”
Meanwhile, Asia’s key financial hubs have been keeping a low profile as America continues to scoop up tech players, even though the fervour for Spacs has cooled.
In Singapore, after an initial burst of three Spac IPOs in January, the exchange has seen no such further listings in 2022. In Hong Kong, Aquila Acquisition and Vision Deal HK Acquisition are blank-cheque companies that have listed, with more than 10 others reportedly seeking a place on the hub’s bourse.
As the year draws to a close, investors still have no clear view of what companies will eventually be acquired by these Spacs, if any. Spacs in Singapore must complete a merger or acquisition within 24 months of the IPO date, with an extension of 12 months possible.
In Hong Kong, Spacs should announce a deal or de-Spac transaction within 24 months, or complete the de-Spac within 36 months, with a six-month extension possible.
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Peggy Mak, portfolio manager at fund management outfit Haven Capital, reckoned it is highly possible that some of the Singapore and Hong Kong Spacs could miss the two-year deadline.
“The global economic environment has clouded all markets, hence Spacs in both markets are not spared,” she told Nikkei. “As the [deadline] draws near, they might lower their standard for a target, which makes it worse.”
Mak stressed that most Spac targets are growth companies that continue to show a negative operating cash flow — performance that investors are shunning due to rising interest rates and recession risks.
“The number of Spacs globally might have outpaced the number of companies looking to be listed. There is still the overarching concern about the tech sector and growth companies, hence we do not expect much enthusiasm even with a de-Spac announcement.”
A version of this article was first published by Nikkei Asia on November 21 2022. ©2022 Nikkei Inc. All rights reserved.