• CFRED CUHK Law

The Equity Era: Asia to SPAC-Off?

Daniele D’Alvia - Institute of Advanced Legal Studies


-- Covid-19 has been so far one of the biggest external shocks for capital markets worldwide. By contrast, a tremendous dry powder was installed in the US between 2020 and 2021 through Special Purpose Acquisition Companies (SPACs).


By the end of 2020, in the U.S. more than 240 Special Purpose Acquisition Companies (SPACs) have been listed on NY Exchanges (NASDAQ and NYSE), raising a record $83 billion. Since the start of 2021, SPACs had already raised $98.1 billion, surpassing 2020 in just one quarter. The year 2020 has been defined in the U.S. by many as the ‘Year of the SPAC’. The ‘big money grab’, just to cite Muddy Waters, still has no sign of ending in 2021.


What is a SPAC?

A special purpose acquisition company (SPAC) is an investment vehicle whose capital is raised via an initial public offering (IPO) of unit securities composed of common shares and warrants. The IPO proceeds are held on trust until the acquisition takes place. The acquisition phase-where the capital is drawn down – is defined in the specific SPAC jargon as “De-SPAC”, which ends with the listing of the merged entity by virtue of a reverse takeover. The acquisition generally takes place within 24 or 36 months from the incorporation of the SPAC. This period can vary depending on the practices of the exchange and jurisdiction in which the SPAC is listed.


Asian FinTech Companies to SPAC-Off?

Asian FinTech private companies are the preferred targets of US SPACs, today. In 2020, Tokopedia (the largest e-commerce platform in Indonesia) contemplated the possibility to be acquired by a SPAC, although it has not yet decided on a deal. Or consider the Singaporean multinational mobile App leader for deliveries, mobility and financial services in Southeast Asia: Grab Holdings Inc. (Grab). The company has announced on April 13, 2021 that will use a SPAC to list on NASDAQ in what is expected to be the largest-ever U.S. equity offering by a Southeast Asian company. India is registering the same trend for instance with Flipkart that since March 10, 2021 is exploring the possibility of being merged with a SPAC in New York.


Those are just a few examples of how SPACs can represent a suitable exit strategy for Fintech companies to get listed on foreign markets (mainly, NY Exchanges). The SPAC represents a new stage of evolution in capitalism by virtue of providing companies with liquidity. All of this with less formal requirements and at a lower cost. They are flexible investment vehicles, and they allow the valuation of the acquisition target to be settled through private negotiations.


The Future of Asian SPACs

It is not by chance that the Indonesian bourse (IDX) is expected to pass regulations by July 2021 to allow companies to go public using special purpose acquisition companies and to issue dual-class shares. Indonesia is specifically looking to allow e-commerce and Fintech start-ups to be listed in the form of SPACs.


This is also in line with international trends in the SPAC arena that today see exponential growth in Europe as well. Here, Euronext is leading important offerings either in Amsterdam or Paris, and the UK is aiming to modify the London Stock Exchange listing rules through the very recent Hill Report on Listing Requirements that represents the much-needed answer of London to the SPAC craze in America.


In Asia, some other jurisdictions have already selected SPACs as a viable alternative acquisition model such as South Korea, Malaysia and India that is aiming to design new SPAC rules through SEBI. Hong Kong is said to be prepared to welcome its first SPAC listing by the end of the year (although here SPAC rules could be tighter due to the imposition of compliance with existing standards for traditional IPO and the request for the sponsor to have a track record in money management).


Therefore, the day is likely not far off in which Asia begins to SPAC-off and show the world the flexibility and attractiveness of its financial markets. As said, the future might seem uncertain due to covid-19, but surely financial markets and regulators are answering with a great input on the side of financial innovation: in four letters, SPAC!


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