Economic Update

– SPACs have become a hot-button topic in global finance

– The vehicle is widely used to help tech start-ups go public

– Both Singapore’s and Indonesia’s exchanges are set to allow SPACs

– Several South-east Asian tech unicorns may use SPACs to list publicly

South-east Asia is seeing a wave of interest in special purpose acquisition companies, or SPACs, with various major tech players considering them as a means to fast-track public listings. In parallel to this, several exchanges in the region are moving to allow SPAC listings, with a view to boosting post-coronavirus growth.

SPACs are shell companies set up by investors and then listed on a given stock exchange. Their sole function is to acquire a private company, enabling it to go public without having to go through a traditional initial public offering (IPO).

A SPAC does nothing beyond its essential function – it neither produces nor sells anything, and a SPAC’s only assets are the funds raised from its own IPO.

Crucially, people who buy into a SPAC do not know what its eventual acquisition target or targets will be. This is why SPACs are often referred to as “blank cheque companies”: they give the founders a free rein to back their choice of private company. A key feature of SPACs is that they are often headed by big-name business executives or fund managers, who trade on past successes to inspire trust in investors.

While they are far from a novel phenomenon, SPACs have become a hot button topic in recent times: SPAC initial offerings quadrupled last year, with the vehicles raising a record $80bn.

Merging with a SPAC enables a company to go public and raise capital more quickly and painlessly than with a traditional IPO, circumventing some of the volatility that Covid-19 caused on global markets. At the same time, they function rather like venture capital, helping investors to buy into high-growth start-ups on the ground floor.

SPACs are driving growth in some exciting sectors: for example, various electric vehicle companies are going public via mergers with SPACs, among them US firms EVgo Services and Volta Industries. Elsewhere, Churchill Capital IV – a SPAC established by Michael Klein, formerly of Citigroup – recently announced a merger with the Saudi-backed Lucid Motors, an electric car manufacturer aiming to compete with Tesla. 

Meanwhile, Israeli trading giant eToro recently confirmed plans to list by merging with FinTech Acquisition V, a SPAC run by US businesswoman Betsy Cohen.

In short, SPACs constitute a short cut to public capital for early-stage start-ups, and have the potential to generate considerable returns for investors.

They are not without their potential pitfalls, however. Given the sometimes unpredictable nature of start-ups, not all SPAC acquisitions generate a profit, and some industry voices are warning of a bubble. For now, though, SPACs are commonly touted as a convenient, low-risk option.

SPACs and South-east Asia

One emerging region that is beginning to recognise the potential of SPACs is South-east Asia.

South-east Asia’s first SPAC was launched in Malaysia as far back as 2011, which was followed by four more. Of these five, four were focused on the oil and gas sector, and only two – Hibiscus Petroleum and Reach Energy – saw any success.

However, interest in the vehicles has been mounting recently, with several countries seeking to position themselves as regional leaders.

Singapore Exchange (SGX) is on track to become the first major bourse in Asia to list SPACs, announcing in January that it would soon to launch a formal consultation on the matter.

“SPACs could provide quicker time-to-market and execution certainty for companies raising funds in more volatile conditions, and we have seen good sponsors being able to screen and bring innovative companies to investors,” Chew Sutat, head of global sales and origination at SGX, told OBG.

“With a good framework that balances and aligns the interests of investors, companies and sponsors, SPACs could catalyse and strengthen SGX’s role in helping regional companies grow and access global investors through Singapore’s capital market platforms.”

SGX is well placed to attract Asia-focused SPACs that have already listed in the US. Notable among these is Bridgetown Holdings, which raised $595m late last year, making it the biggest SPAC concentrated on South-east Asia.

Bridgetown 2, meanwhile, raised $299m in January. This SPAC intends to target a company or companies in the technology, financial services or media sectors in South-east Asia.

Indonesia makes a play

Another South-east Asian bourse that has recently announced that it is set to allow companies to go public via SPACs is the Indonesia Stock Exchange (IDX). Officials from the exchange told local media in early March that the IDX was planning to put SPAC regulations in place by July.

Indonesia is home to a number of major tech start-ups, several of which are looking to go public.

Among them is Tokopedia, an online shopping platform and one of the region’s biggest start-ups, which had planned an IPO for 2020, but put it on hold as a result of the pandemic. In December the company confirmed that it was now ready to go ahead – and that it had been approached by Bridgetown Holdings.

While it seems that a traditional IPO is the firm’s preferred option, the SPAC route offers various benefits, not least a shorter listing timeline; as South-east Asia begins its rebound from Covid-19, it may be that Tokopedia decides there is no time to waste.

Also in Indonesia, Traveloka – the region’s biggest online travel start-up – has likewise said it is talking to SPACs about a US listing, with Bridgetown likely to be among its options.

If Tokopedia and Traveloka do indeed go down the SPAC route, this could inspire other South-east Asian tech giants that are looking to list in the immediate future, among them the super apps Grab and Gojek.

Elsewhere, in Manila the Universal Entertainment Group recently announced that it is looking for a US-based SPAC to list its Okada Manila resort business on a US bourse, indicative of rising levels of interest in SPACs among Philippines-based firms.

Thus, while there are still question marks around the sustainability of the global SPAC boom, it seems that South-east Asian companies are increasingly looking to the vehicle to drive expansion. The SPAC could well become a key element in the region’s post-pandemic economic reinvention.