Two years after Asia’s two big financial hubs, Singapore and Hong Kong, allowed so-called blank-cheque companies as a novel way to help fast-growing technology start-ups and others go public, the results have fallen short of expectations.
These fundraising vehicles, known as special-purpose acquisition companies (Spacs), raise money with a promise to invest in an operating company. They have largely failed to deliver an era of quicker listings of tech upstarts on Asian exchanges.
Most Spacs listed in the two financial centres have failed to bring privately held companies on to their stock exchanges. Nor have any new Spacs made their debuts in Singapore or Hong Kong last year, after a flurry of initial public offerings of these fundraising shell companies in 2022.
“Investor interest in Asian Spacs has been poor,” said Mak Yuen Teen, a professor of accounting at the National University of Singapore Business School. “The experiment with Spacs is over in Singapore, and probably Hong Kong, even if the exchanges do not want to admit it and claim that there may be other Spac listings in future.”
Singapore may have beaten Hong Kong to listing the first Spacs in January 2022, but Mak called that victory “hollow”. Three Spacs — Vertex Technology Acquisition, Novo Tellus Alpha Acquisition and Pegasus Asia — launched IPOs on the Singapore Exchange that month.
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Two years later, only Vertex, backed by Singapore state investor Temasek, completed a merger. The other two failed to do so, setting both on a path to dissolution, with the money raised via their IPOs returning to investors.
Vertex merged with 17Live in December, allowing the Taiwan-founded livestreaming platform to bypass a traditional IPO, which was the appeal, at least in theory, that Spacs presented to tech start-ups looking to go public.
A traditional IPO involves a more arduous vetting process and typically requires more time. Spacs do the initial work of the IPO, with the start-up using it as a vehicle to become a publicly traded company via a merger, also known as a “de-Spac”.
US markets paved the way for the rise of Spacs in 2021 when the Covid-19 pandemic was in full swing and interest rates were low, which fed risk appetite among investors for fast-growing, but also cash-burning, tech start-ups.
Singapore unicorns such as Grab and Sea Group, or start-ups with a value of over $1bn, listed in the US, with Sea doing so via a traditional IPO while Grab went public with a de-Spac.
The ambition was for Asian exchanges to take a slice of the lucrative Spac pie, and Singapore and Hong Kong formalised their rules for blank-cheque companies by 2022, opening the way for sponsors and their targets to make it work.
But this has not always produced the desired results. 17Live’s share price, for instance, has dived more than 70 per cent from the benchmark set by the shell company it merged with.
“It is clear that the Singapore experiment with Spacs has failed,” Mak said. “While SGX may claim that there is now a Spac framework, and does not rule out future Spac listings, I think it is game over.”
SGX, the city-state’s bourse, has not had a new Spac listing after the first three. Its rival, the Hong Kong Stock Exchange, has also seen a drought in such listings.
According to financial markets data provider LSEG, the last Spac to list on the Hong Kong market was TechStar Acquisition in December 2022, bringing the total number of blank-cheque companies to five. With no new Spacs listed since then, only two — Aquila Acquisition and Vision Deal HK Acquisition — found target companies to merge with.
“Since the launch of the Spac regime in Hong Kong in 2022, it has yet to spark significant waves,” said Hebe Chen, market analyst at IG International. “Escalating fears of a global recession and China’s lacklustre economic recovery have contributed to a growing cautious mood in the Hong Kong market, leading to a sharp decline in market valuations and restricted liquidity.”
Soaring inflation, coupled with Russia’s invasion of Ukraine, helped to make investors skittish. The US Federal Reserve set the tone by jacking up interest rates and central banks elsewhere have followed suit, ending the era of cheap money that helped fuel the rise of Spacs.
The performance of de-Spaced entities has also been lacklustre. Like Singapore-listed 17Live, Grab’s share price has sagged by more than 70% since its US listing. Grab listed on Nasdaq via its Spac merger in December 2021. It was only in November 2023 that it logged its first quarterly profit on an adjusted basis since its founding more than a decade ago.
“Interest towards Spacs has been extremely speculative, and only investors with higher risk appetites were really willing to inject funds into the listed vehicles,” said Oriano Lizza, a sales trader at trading platform provider CMC Markets. “Specifically, with higher [interest] rate environments, investors were not required to take such risk, and opted for risk-free returns in the case of fixed deposits and government bonds.”
Pol de Win, SGX’s head of global sales and origination, said the bourse’s decisions on Spacs were not made based on one market cycle, but for the longer term, adding that a scenario where blank-cheque companies make a comeback in “the next five years” is possible.
He said that for a good de-Spac to occur, the IPO environment has to be “conducive,” and this has not largely been the case for the last two years. “If we go back two years, we would have hoped that we were in a different position now,” de Win said. “But a lot of that, or pretty much all of that, is just down to timing and market conditions.”
A version of this article was first published by Nikkei Asia on February 12. ©2024 Nikkei Inc. All rights reserved.
