SPACed out | India Enterprise Law Journal

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.

Regulatory roadblock

Asia being the hunting ground for US-listed SPACs eyeing targets has put pressure on the financial capital markets of Hong Kong and Singapore to allow the listing of SPACs, and thereby ensure Asia does not lose its unicorns to the US.

South Korea and Malaysia are to date the only two Asian jurisdictions that permit the listing of SPACs. India and Japan are also contemplating introducing SPAC listings.

“The SPAC structure, if properly regulated and used, could provide opportunities for the public to invest in a broader set of companies, and therefore could be important for the future development of a jurisdiction’s capital market,” says Lin Xiaoxi, a partner in Linklaters’ corporate practice in Hong Kong.

Asian regulators have proposed some stringent regulations that may not sit well with institutional investors. There is a tendency to protect retail investors in Asia, which explains why most Asian regulators are cautious of introducing SPACs, a relatively sophisticated transaction of institutional investors and private equity funds.

Singapore and Hong Kong are trying to change the rules of the SPAC game as they propose greater transparency in the interest of retail investors.

Singapore has proposed listing criteria of SG$300 million (US$226 million) for SPACs, with up to three years for them to combine with a target. The idea may be good, but it would mean finding larger targets and convincing targets to list in Singapore.

A three-year horizon may not necessarily work well for investors, who may not have the patience to wait that long. When Asia is losing its unicorns to the US, which offers flexibility, this is not the time to change the rules to safeguard retail investors, the hedge fund manager warns.

Stefanie Yuen Thio, the joint managing partner at TSMP Law Corporation, based in Singapore, agrees and says the SPAC market needs two exchanges with similar rules if Singapore is to provide an alternative forum for SPAC listings.

Singapore needs to get on “the SPACs bandwagon quickly or risk losing our unicorn success stories to the Nasdaq”, Thio tells Asia Business Law Journal.

For Singapore to grab a share of the SPAC market, it needs to adopt US rules to the fullest extent possible because “that’s what investors and target businesses are looking for”, she says. If the US tightens controls, Singapore can do so, too, and hence needs to be a “price taker” instead of coming out with a whole new framework, she adds.

The Singapore Exchange (SGX) has not fared well in the covid era, with few IPOs, and not very attractive valuations, says Sivanesan. It explains why many better startups consider listing overseas, because the founders and their financial advisers do not view the Singapore market “as liquid or sophisticated enough”, he says.

Singapore’s SPAC listing consultation paper indicates that the SGX is trying to attract large, well managed and reputable SPACs and sponsors with a good track record, says Sivanesan. “To raise SG$300 million, you need to be a reputable and excellent sponsor to be able to tap that kind of money from regional high net-worth investors in Asean, India, and China,” he says.


Singapore’s market cannot raise that kind of funding because there are not many Singapore sponsors or individuals who would have the kind of clout that will attract investors, he adds, but attracting investors from the region and finding targets will not be an issue.

Hong Kong regulators need to adopt a different approach than their current focus on protecting retail investors, says Gilbert Li, Linklaters’ Hong Kong-based corporate partner advising Chinese and international clients. He suggests limiting SPACs to institutional and professional investors, meaning the offering will not have a retail tranche.

“It could strike a good balance between enhancing Hong Kong’s competitiveness as a fund-raising hub and protecting retail investors,” says Li.

Unlike Singapore, Hong Kong’s market has depth and liquidity. Last year, the Stock Exchange of Hong Kong Exchange facilitated 154 companies to raise HK$400.2 billion (US$51.5 billion) through IPO proceeds. The exchange also collected HK$1.9 billion in listing fees in 2020. According to data from the Hong Kong exchange, more than 60% of the IPO funds raised since listing reforms in 2018 were from new economy sectors.

Asian markets will be able to pick up quite a bit of the flow because the cost in Asia will be lower than the listing of SPACs in the US, Linklaters’ Asia head of capital markets, and incoming regional managing partner, William Liu, tells Asia Business Law Journal.

Pointing to the depth of the Hong Kong market, Liu cites the law firm having facilitated the US$10 billion secondary listings of Chinese food-delivery giant, Meituan. “We are very keen to see that happening in Asia … If we put [in] the effort together and the rule changes, all that can happen this year,” he says.

A SPAC listing in Singapore equally has every chance to succeed, although some degree of fine-tuning in the criteria is required to attract good sponsors, says Sivanesan. He does not rule out Chinese fund managers considering SPACs and injecting capital into their own or related businesses.

The real challenge will be to ensure that, post-combination and listing, “the combined entity can grow, succeed and maintain its listing,” he says. If things do not work out and it results in a delisting, this could tarnish the shine that SPACs offer.

Thio fears Singapore could end up with another S-chip problem should it attract second-rung sponsors and targets with less robust management and governance structures. The idea is to get the best sponsors and premium targets because the quality of investors who take positions will bring a higher level of scrutiny, she explains. “Having quality market participants is just as important to a well regulated market as having tight listing rules,” she says.

Target companies should agree to merge with the SPAC if guaranteed a certain amount of funds will be retained post-combination. “If the SPAC shareholders pull out, it would jeopardise the listing of the target, and there may be inadequate funds,” says Sivanesan. There are onerous listing obligations under the US SEC, and compliance costs, and target companies vying for listing in the US might end up with a deficit if they cannot get access to the agreed amount of funds via the SPAC route, he explains.

SPAC language barrier

While SPACs have targeted companies in Southeast Asia, China and India, Japan did not seem to appear on their radar. SPAC deals are significantly complex and need to be negotiated and agreed on in a very compressed timeline. This could be challenging for Japanese targets, given the language barrier and considering that all documentation and negotiation would be in English, says Baker McKenzie’s Tokyo-based corporate and M&A partner, Yutaka Kimura.

“Although Japanese organisations are becoming quicker in making important managerial decisions, including those required for significant M&A transactions, they may not necessarily be quite up to speed as to what will likely be required for a SPAC transaction,” says Kimura. “We believe that the number of SPAC deals involving Japanese companies has been small for these reasons, more than because of valuations.”

However, Hiroki Sugita, a Tokyo-based partner at Orrick, says a few startups in Japan meet the size of a listed SPAC. “We also need more late-stage investors who [can] provide big tickets to these, so that they can remain unlisted until they grow,” he says.


With limited access to venture capital, startups have no option but to go public to raise funds, and hence few startups can meet the valuation criteria from a SPAC’s perspective, Sugita explains.

Japan’s insufficient means to provide capital to unlisted startups is one of the key reasons why the Growth Strategy Council, a government panel, has proposed SPAC listings.

As long as SPAC listings overseas do not create issues where investors are adversely affected, “the current overseas trend could be introduced in Japan”, says Linklaters’ Tokyo-based partner, Hiroya Yamazaki.

Japan is likely to go slow in introducing SPAC listings, says Sugita, until one of Japan’s startups is snatched by another stock exchange through a SPAC.

Kimura agrees, and says that although the Tokyo Stock Exchange has been seriously evaluating the introduction of SPACs, it will take more time because “we understand the authorities’ priorities, for the time being, is ensuring stable market operations.”

But Japan is unlike Singapore. The Japanese capital market is dynamic in terms of its depth, reach, and sophistication, Kimura says.

No SPAC bubble – yet

There is so far no question of the bubble bursting, or the market fatigued with so many SPACs listed and more in the offing, should Asian regulators allow SPAC listings.

Both Sivanesan and Thio say that there have been numerous inquiries from clients to understand SPACs, so the interest exists.

“There’s still a runway, even if it’s at a less fevered pitch,” says Thio. As Chinese investors and targets are wary about listing in the US, there is a need for an internationally recognised capital market for them. Singapore – not being a part of China, unlike Hong Kong, and therefore geopolitically neutral – is well placed to be the next listing venue for SPACs, says Thio. “But we have to do it quickly because the frenzy may not last long,” she adds.

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