The Singapore Exchange Securities Trading Limited (SGX-ST) is the first bourse in Asia to allow special-purpose acquisition companies (SPAC) to be listed.

The interest in SPACs became significant at about the time the COVID-19 surfaced and now in Singapore, conditions for a SPAC listing on the SGX-ST have now finally been cast by way of amendments to the SGX-ST Mainboard Rules effective 3 September 2021.

The South-China Morning Post reports that while SPACs have been around for decades, SPACs really only came around in 2020 and became one of the hottest fundraising trends globally in the last 18 months. At the end of 2020, Goldman Sachs observed that the record fundraising by SPACs is expected to continue in 2021 and could result in a wave of some US$300 billion in mergers and acquisitions in Asia and other parts of the world over 2021 and 2022.

Tan Boon Gin, CEO of SGX Regco, said in an announcement on 2 September 2021 that the SPAC process is to result in good target companies listed on SGX-ST, providing investors with more choice and opportunities. He adds that “to achieve this, you can expect us to focus on the sponsors’ [being the founding shareholders’] quality and track record. We have also introduced requirements that increase sponsors’ skin in the game and their alignment with shareholders’ interests”.

A SPAC listing on the SGX-ST will be on the Mainboard of the SGX-ST. The Mainboard Rules regarding SPACs cover the listing criteria, pre-business combination (de-SPAC) and de-SPAC conditions. The issuer is permitted to further raise funds after the IPO and before the de-SPAC, subject to the conditions set out in the Mainboard Rules. A summary of the foregoing is set out below:

At IPO

At the initial public offering (IPO), the main conditions to be met for a SPAC listing are as follows:

1. the issuer must have a market capitalisation of not less than S$150 million based on issue price and post-invitation issued share capital;
2. the founding shareholders and management team must subscribe for a minimum value of equity securities (based on IPO subscription price) in accordance with the following:

Market Capitalisation (S$ million)	Proportion of subscription
At least 150 or less than 300	3.5%
At least 300 or less than 500	3.0%
At least 500	2.5%

3. the aggregate equity interests in the issuer acquired by founding shareholders, management team and their associates at nominal or no consideration shall not exceed 20% of the issued share capital of the issuer (on a fully diluted basis) immediately following closing of the IPO;  
4. the issue price of the securities (for example, warrants/shares) offered for subscription or sale must be at least S$5/- each;
5. for a SPAC, no dual class share structure is allowed at IPO;
6. the existing moratoriums set out at Rules 227, 228 and 229 of the Mainboard Rules apply. There is a 6-month moratorium after de-SPAC and for applicable issuers, a further 6-month moratorium thereafter on 50% of shareholdings;
7. at least 25% of the total number of issued shares (excluding treasury shares) must be held by at least 300 public shareholders; and
8. the majority of each of the board committees performing the functions of an audit committee, a nominating committee and a remuneration committee, including the respective chairmen, must be independent. The issuer is not allowed to adopt any security-based compensation arrangement before the completion of the de-SPAC.

IPO proceeds to be in escrow

At least 90% of the gross funds raised must be placed in an escrow account opened with and operated by an independent escrow agent (being independent of the founding shareholders, management team and their associates) which is a financial institution licensed and approved by the Monetary Authority of Singapore. IPO proceeds that are not placed in escrow, interest or other income earned on the escrowed funds from permitted investments may be applied as payment for administrative expenses incurred by the issuer in connection with the IPO for general working capital expenses and for the purpose of identifying and completing the de-SPAC.

The issuer (through the escrow agent) shall only be permitted to hold its assets in permitted investments in the form of cash or cash equivalent short-dated securities of at least A-2 rating or equivalent until completion of the de-SPAC that meets the SGX-ST requirements.

This amount in escrow cannot be drawn except for the purpose of the business combination, on liquidation of the issuer or otherwise set out in Practice Note 6.4 of the Mainboard Rules. The escrow agreement must provide for termination of the escrow account, including:

1. release of the escrowed funds on a pro rata basis to shareholders who exercise their redemption rights and the remaining escrowed funds to the issuer if the de-SPAC is completed within the permitted time frame; and
2. distribution of the escrowed funds to independent shareholders in accordance with the Mainboard Rules.

    

Further fund raising prior to completion of de-SPAC

Before completion of the de-SPAC, the issuer may be permitted to raise additional funds by way of equity issuances. In the case of warrants or other convertible securities, these must:

1. have exercise price of at least the price of the ordinary shares offered for the IPO;
2. not be exercisable before the completion of the de-SPAC;
3. not have entitlement to the funds held in the escrow account upon liquidation of the issuer or redemption of the ordinary shares by shareholders;
4. expire on the earlier of the permitted timeframe for completion of the de-SPAC or the maximum tenure under the issuance terms stated in the prospectus issued in connection with the IPO; and
5. comply with the usual provisions of Part VI of Chapter 8 of the Mainboard Rules.

The issuer must establish a percentage limit of not more than 50% as to the maximum dilution to the issuer’s post-invitation issued share capital with respect to the conversion of any convertible securities issued by the issuer in connection with the IPO.

Funds raised are subject to escrow requirements and can only be raised for purposes of financing the de-SPAC and/or related administrative expenses. The issuer is not allowed to obtain any form of debt financing (excluding short term trade/accounts payables in the ordinary course of business) other than contemporaneous with the de-SPAC. Funds in escrow cannot be used as collateral or be encumbered for debt financing. No form of financial assistance is permitted by the issuer to any person/entity until the issuer has fully financed or satisfied the consideration of the de-SPAC and completed the acquisition underlying the de-SPAC.

Contingencies

If before completion of the de-SPAC, a material change occurs in relation to the profile of the founding shareholders and/or management team which may be, in the words of the Mainboard Rules, “critical to the successful founding of the issuer and/or successful completion” of the de-SPAC, the issuer is required to seek approval of a majority of at least 75% of the votes cast by independent shareholders for the continued listing of the issuer. The SGX-ST will determine what a circumstance an event of material change is for this purpose.

Also, where the issuer does not complete the de-SPAC in accordance with the permitted time frame and criteria or is directed to delist by the SGX-ST, it shall be liquidated. The amount held in escrow at the time of liquidation distribution and such other amounts held by the issuer, net of taxes and liquidation distribution expenses, shall be distributed to the shareholders on a pro rata basis as soon as reasonably practicable, subject to applicable law. Interest, income derived and deferred underwriting commissions accrued in escrow shall be part of liquidation proceeds. Founding shareholders and the management team (including each of their associates) must waive their rights to any deferred underwriting commissions deposited in the escrow account in such a liquidation event. On or about the date of completion of liquidation distribution, the issuer will be delisted by the SGX-ST.

De-SPAC

On a more positive note, the de-SPAC must complete no later than 36 months from the date of listing (subject to conditions being fulfilled). The de-SPAC also requires more than 50% of the issuer’s independent directors approving the transaction and more than 50% of shareholders voting in support of the transaction.

The de-SPAC must result in the resulting issuer having an identifiable core business of which it has majority ownership/management control. The SGX-ST also retains a general discretion to delist the issuer if it is deemed to not be in the best interest of the SGX-ST and the public for the continued listing of the issuer after completion of the proposed de-SPAC.

The initial business or asset acquired pursuant to the de-SPAC must have a fair market value of at least 80% of the amount in escrow at the time of execution of the definitive agreement for the de-SPAC. Multiple concurrent acquisitions/mergers are permitted but there must be at least one initial acquisition that satisfies the requirement of having a fair market value constituting at least 80% of the amount in escrow. Concurrent transactions must be in separate resolutions and conditional upon the initial acquisition completed simultaneously on or around the same day within the permitted timeframe. A financial adviser (who is an issue manager in a conventional IPO process) must be appointed to advise on the de-SPAC.

A competent and independent valuer must also be appointed if the de-SPAC involves a placement for an issuer’s equity securities by institutional investors/accredited investors not conducted contemporaneously with the de-SPAC, or the de-SPAC involves a mineral oil and gas or property investment/development company. At the discretion of the SGX-ST, the issuer may also be required to appoint a competent and independent valuer to value the business/assets to be acquired. The resulting issuer must satisfy, where applicable, Rules 210(1) to 210(10) and 222 of the Mainboard Rules. Where it is an interested person transaction, the regime pursuant to Chapter 9 of the Mainboard Rules apply.

Any other extensions of time to complete the de-SPAC must be approved by the SGX-ST and with approval of at least 75% of the votes cast by shareholders of the issuer (in this regard, the founding shareholders, management team and their associates are not permitted to vote with shares acquired at nominal or no consideration prior to or at IPO of the issuer). The issuer must justify a compelling reason for the extension of time and any application to the SGX-ST for such extensions must be submitted at least two (2) months before the expiry of the permitted timeframe. The SGX-ST may reject an application for time extension if in its opinion, there is no compelling justification or is in the interest of the public to reject the application.

Redemption of ordinary shares by independent shareholders

All independent shareholders (other than founding shareholders, management team and their associates) are entitled to redemption rights of their ordinary shares (not preference shares but ordinary shares) for a pro rata portion of the amount in the escrow account at the time of the de-SPAC general meeting, provided that the de-SPAC is approved and completed in accordance with the Mainboard Rules. Such amounts must be paid to the electing independent shareholder as soon as practicable upon completion of the de-SPAC and the ordinary shares tendered in exchange for cash must be cancelled.

Conclusion

Even before the Singapore SPAC regime became official, the consultation process mounted by the SGX-ST already sparked interest and discussion amongst various stakeholders in the industry. It is a happy development for the door to finally be opened to SPAC listing on the SGX-ST, in a period of many closed doors/borders brought about by COVID-19. Being the first bourse outside America to cast these consultations into rules reflects the SGX-ST’s fortitude to take the first step here in Asia to create even more choice investment opportunities in the region and at the same time promulgate safeguards for independent shareholders and their investments.