Special Purpose Acquisition Companies (“SPACs“) are companies, at the point of their proposed listing on the Singapore Exchange (“SGX“), without an operating history, business or assets generating revenues. The listing is undertaken primarily to raise capital to acquire a business or businesses, as the case may be, and complete a business combination. In this article, I set out the key requirements, both quantitative and qualitative, for the listing of a SPAC on the SGX.
It is not a requirement for a SPAC to be established in Singapore. This means that a corporation or a corporate entity incorporated outside of Singapore can be used as a SPAC and listed on the SGX. Nevertheless, to ensure that investors are still protected, the SGX will assess whether the jurisdiction that the potential SPAC is from has investor protection laws and liquidation rights bestowed upon investors which are similar to those provided for in Singapore’s legislative regimes.
Minimum Issue Price
The IPO (as defined below) issue price must be at least S$5. For SPACs, the IPO issue price refers to the price of each security. Each security that will be issued may consist of a share and a warrant (or any other convertible securities).
Minimum Market Capitalisation
The minimum market capitalisation to be admitted for SPAC listing on SGX is S$150 million. Thus, any potential SPAC has to fulfill this quantitative threshold before it can be admitted onto the SGX.
SPAC’s Market Capitalisation: IPO issue price x Share Capital of the SPAC (issued after the invitation)
It has been noted that there was a lot of discussion regarding the quantum of minimum market capitalisation. It was first suggested that S$300 million would be appropriate. However, industry observers had noted that a typical business combination would be at least triple the initial SPAC size. Thus, a S$300 million threshold would result in a target pool of companies with at least S$900 million, a figure that unduly narrows the pool of target companies in Asia. Therefore, to expand the pool of targets, the threshold was lowered to S$150 million (target companies now need only be worth at least S$450 million and above) – something that would provide a healthy pool of targets for SPACs to undertake their business combination with.
At least 300 public shareholders must hold 25% or more of the total number of issued shares of the SPAC (excluding treasury shares).
The promote refers to the sponsor’s right to obtain further equity in a SPAC in exchange for sponsoring the SPAC. SGX has imposed a sponsor’s promote limit of up to 20% of the SPAC’s issued share capital (on a fully diluted basis).
As the SPAC is listed on the SGX for the purpose of raising capital, it will invariably have to deal with the funds raised from the listing exercise. The listing rules now mandate that the SPAC must immediately deposit at least 90% of the gross funds raised during the IPO into an escrow account. This escrow account must be with an independent escrow agent, regulated and approved by the Monetary Authority of Singapore. The remainder can be used for payment towards administrative expenses and general working capital expenses.
These funds in escrow can only be withdrawn upon the occurrence of certain events, such as a business combination or the liquidation of the SPAC. During the period between the fund being deposited into the escrow account and the withdrawal of such funds, the SPAC (through the escrow agent) will be entitled to invest the funds only in permissible investments. Such investments include short-dated securities having a rating of A-2 or higher. A short-term obligation rated ‘A-2’ by a rating agency is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.
Generally, the SPAC must conclude a business combination within 24 months of its initial public offering (“IPO”) to ensure that SPACs are driven to find acceptable candidates for the business combination as soon as possible. However, there are provisions to allow for an extension beyond this 24-month period:
(a) Automatic extension: Subject to a total timeframe of 36 months from the date of IPO and the fulfillment of certain prescribed conditions, if the SPAC enters into a definitive agreement for a business combination prior to the expiry of the 24-month period, the SPAC automatically has up to 12 months from the relevant deadline to conclude the business combination. This automatic extension has been instituted to allow the SPAC to concentrate on due diligence and the execution of the business combination without having to worry about obtaining shareholder approval for the time extension.
(b) Non-automatic extension: On the flip side, if the SPAC has not reached a definitive agreement for the business combination by the expiry of the 24-month period and needs to have more time to find a suitable business to acquire, it must obtain the necessary approvals from SGX and shareholders. A majority of at least 75% of the votes cast by shareholders at a general meeting would be required for shareholder approval.
Minimum Equity Participation
The SPAC’s sponsor and management team must subscribe for a minimum value of equity securities (on aggregate) in accordance with the following requirements:
Market Capitalisation (S$) Proportion of subscription
More than or equal to 150 million, but less than 300 million 3.5%
More than or equal to 300 million, but less than 500 million 3.0%
More than or equal to 500 million 2.5%
The minimum equity participation guarantees that the interests of the sponsor and management team are aligned with the other investors. SGX has not defined the manner or timing of how such people would complete their equity participation to allow for flexibility.
The features of the SPAC framework set out above are a brief introduction to SPACs in Singapore. Stay tuned for more features in Part 2 of this guide.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.