SPACs as a game changer for South-east Asian businesses

Jan 15, 2022

Srividya Gopal

THE year 2021 has been one of mega flotations for South-east Asia, with the region's most valuable unicorns such as Grab and GoTo having gone public or announced plans to list, either via the traditional initial public offering (IPO) route or by merging with special purpose acquisition companies (SPACs).

Global SPAC activity has gone from a total of 299 SPAC IPOs in 2020 with over US$75 billion raised, to 683 IPOs with a total of US$142 billion in 2021. This does not encompass SPAC IPOs that have been announced and yet to be completed, with an expected capital raise of US$63 billion.

Furthermore, the value of the acquisition, or initial business combinations (IBCs or de-SPACs) that were completed in 2020 and 2021, is over US$358 billion with several cases exceeding the initial SPAC IPO fund raised, due to additional funding through private investment in public equities (PIPE) and other sources.

Though the SPAC phenomenon has largely been evident in US markets, the Singapore Exchange (SGX) has recently made waves as the first major Asian bourse to welcome SPAC listings, with the first few listings set to make a debut soon.

As South-east Asia continues to see an increasingly flourishing startup system, this move is especially significant as it opens up a pathway to growth for many upcoming tech players in the region.

SPAC evolution in Asia

In 2020 and 2021, over US$5.5 billion has been raised by Asian funds through US SPAC listings, of which US$1.5 billion have been from South-east Asia. There have been several funds from this region, including Catcha Investment, L Catterton, Aspirational Consumer and Vickers Vantage, which have listed their SPAC vehicles in the United States during this period.

Some have already completed a de-SPAC with global companies and others are looking for targets. There is a strong pipeline of more funds from the region looking to list their SPAC vehicles in the US.

Within 2021 alone, the total value of announced IBCs or de-SPACs involving South-east Asian funds or businesses reached US$59 billion. While Grab Holdings garnered a lion's share of this value, there have been several other companies (IBC targets) such as Bitdeer, Property Guru and FinAccel, which have been valued at well over US$1 billion each in announced de-SPAC transactions.

Turning to Asian stock markets, the first SPAC regime to see traction was South Korea. Over 30 SPACs listed in local markets such as Kosdaq and Kose in 2020 and 2021, but the capital raised from SPAC listings in Korea was relatively small compared to the US market, amounting to US$338 million.

While Malaysia has had a SPAC framework since 2009, the market has seen very few listings over the years and none in the last few years. However, the Securities Commission of Malaysia has recently revised the SPAC framework to create more flexibility in order to attract more listings and promote the development of the Malaysian capital market.

Last September, SGX published its regulatory framework for SPAC listings, which opened up new doors to growth for firms across South-east Asia, particularly those in the new economy sectors.

There has been significant interest from some global investors and several regional funds that are keen to list their SPAC vehicles on the SGX. The Hong Kong Exchange has also announced its SPAC regulatory regime with effect from January 2022, targeting companies from Greater China, South-east Asia and beyond.

While these regulatory developments from Singapore and Hong Kong are broadly in line with the US market, they are slightly different as they look at local market requirements in terms of market capitalisation, independence, investor protection and shareholder expectation as guiding principles.

SPAC as a compelling proposition for South-east Asia

There have been over 1,200 private equity/venture capital (PE/VC) investments into businesses in Singapore, Malaysia and Indonesia between 2018 and 2021 with a combined deal value of US$53 billion. The number of IPOs across these 3 markets, on the other hand, have been only 327, with a total of US$12.7 billion raised across sectors.

Half of the PE/VC investment volumes in these markets during this period have been in the technology sector with a total value of US$31 billion and taking up 64 per cent of total PE/VC investments in 2021.

The region has been home to 42 unicorns as at December 2021, 75 per cent of which attained the unicorn status in the past 3 years and over 50 per cent did so in 2021 alone. While a few of them have successfully gone public or merged with public companies, there are several of them actively looking for listings in the US or South-east Asia, either directly or through SPAC vehicles.

Given the typical investment holding cycle of 4 to 7 years, there is a significant and urgent need for exit options for investors in the immediate or near future. This shows that there is a wide gap between investments and exits, which could be possibly filled by de-SPAC opportunities significantly.

The good and the bad

One of the key challenges relates to negative media sentiment that is historically associated with SPACs. There have also been several changes to regulations, interpretations and scrutiny by the US SEC on SPACs in the US within the past year. This has introduced a speed-breaker on the number of listings. While there is continued interest in SPAC IPOs in the US, these interventions have slowed down the number of listings during parts of 2021.

However, these interventions help in better investor protection, transparency and governance, to ensure consistency and quality of listings. Similarly, the SGX has put in place minimum SPAC sizes and adequate due diligence processes to be able to focus on reputable investors to be SPAC sponsors.

The other challenge is the typical outlook of retail investors in South-east Asia who prefer companies with stable, steady revenues and profits, whose return expectations are from dividends rather than capital gains. Hence, the local bourses need more investors willing to invest in pre-profit, growth-oriented companies and a broader well-developed ecosystem of strong well-funded private businesses and strong market-makers.

Retail investors in the region are still conservative, but our broad ecosystem is much more developed now compared to a few years ago. For example, earlier, most private equity investments went into buy-out deals and investing in profitable companies. Now, more of the PE/VC investments are getting into pre-profit and other venture businesses.

Recent statistics do indicate a relatively healthy pipeline of SPACs and de-SPACs from South-east Asian funds and businesses, given the significant interest and recent traction for such transactions. While it is likely that there will continue to be strong interest for US SPACs from South-east Asian businesses, the SGX and other Asian exchanges can provide a strong alternative option for many of the homegrown South-east Asian unicorns and other high-growth new economy businesses that are looking to go public.

While it is still early days, the opportunity looks promising, and it will be interesting to see how it develops in 2022 and beyond.

The writer is managing director of Duff & Phelps, a Kroll business