Merging with SPACs, to go public in the US, became a mania in 2021, and investors are now increasingly looking at new lands of opportunities such as Southeast Asia to find attractive companies that can join the bourses.
The success of Singapore-based Sea Limited’s listing on the New York Stock Exchange (NYSE) in 2017 has offered investors a new look at Southeast Asian stocks.
Sea Limited, which debuted on NYSE in October 2017 at a valuation of over $5 billion, has now grown into a $170 billion company in terms of market cap. That has urged more Southeast Asian firms, particularly tech companies, to tap global capital through US listings.
“Investors are looking for the next Sea Ltd,” Delano Musafer, NYSE’s head of APAC capital market, told DealStreetAsia in an interview. “Given that investors are looking for opportunities outside Greater China, I think Southeast Asia is an obvious choice.”
Musafer, who will be relocating from Hong Kong to Singapore in October this year, said: “The main advantages of a US listing […] are access to a sophisticated tech investor base, particularly the US; liquidity; and a certain amount of prestige on the global stage.”
Excerpts from the interview which was edited for clarity and brevity:
NYSE has hosted many listings by Chinese and South Korean unicorns. How important is it for you to list Southeast Asian companies?
It’s really important. To work toward this, I will be relocating to Singapore in October [from Hong Kong]. Southeast Asia and India are going to be more important going forward in terms of the share of deal volume, so it’s an incredibly important part of our APAC franchise. The success of Sea Limited’s IPO in 2017 was fantastic for the Southeast Asia ecosystem. We definitely want to bring more companies like that to the NYSE.
What kind of values can Southeast Asian companies bring to the market?
There will be diversity. A lot of investors are familiar with the China story, but Sea Limited was really the first Southeast Asian company of size to list in the US. So in terms of diversity of investment opportunity, that’s definitely something. Traditionally, Southeast Asian companies did not often do IPOs for exits. They tended to opt for trade sales. Now, there are companies looking to go public, either via a traditional IPO or by the SPAC route. At the end of the day, international investors are looking for growth at scale, and we’re very confident that Southeast Asia offers that opportunity for investors, particularly Indonesia. Other markets, like Singapore and Vietnam, too, have unicorns that can potentially look at US IPOs.
Investors are looking for the next Sea Ltd. Given that investors are looking for opportunities outside Greater China, I think Southeast Asia is an obvious choice.
Some companies trumpeted their overseas listing plans a few years ago but nothing fructified. Just recently, Grab said it has to delay its SPAC merger. What generally leads to such hiccups?
The [US] stock market had some technical difficulties in the last few months. The SEC [US Securities and Exchange Commission], for example, expressed opinions on how the warrants should be accounted for. So, the SPAC market faced some issues over the last couple of months, and transactions via that route have been delayed. But the fundamental attraction of going public for some companies is still very much there.
Given the SEC’s stricter scrutiny, will the SPAC frenzy last?
I think SPACs are here to stay as an alternative mechanism for going public, particularly for companies in the $1-5 billion valuation range. It’s a very feasible alternative to the traditional IPO method, particularly because you can lock in the valuation relatively early on in the process, and you can use projections which you can’t use in a conventional US IPO. In a way, the SEC position is a good thing because it filters out the lower-quality candidates.
Listing and financial reporting standards can be a major challenge. What should companies keep in mind to prepare for a smooth transition to the US market?
There is this perception that listing in the US is quite tough. It’s actually more straightforward than you probably think. Virtually, all non-US entities file [for IPOs] as foreign private issuers. If they do it that way, there is a significant exemption and reduced requirement, particularly on the disclosure and accounting side. For example, you can report in IFRS, and do not need to convert to US GAAP.
In terms of listing standards, it’s a lot less than many people think. For the NYSE, issuers only need a minimum market cap of $200 million on the day of the listing, and a minimum IPO deal size of $40 million. There is no profitability requirement, which is why it’s attracted a lot of issuers. And there’s no minimum percentage of free float requirement either.
There is some concern of irrational valuations of companies that are merging with SPACs. Do you think SPACs could distort valuations, especially tech companies?
Valuation is up to agreement between investors and issuers. At the end of the day, tech companies are obviously seeking attractive valuations, given that the market has been very attractive in the last year or two. I don’t think that’s restricted to just SPACs. As I mentioned, the ability to lock in valuations early on is one reason why the SPAC route is quite favoured by many potential issuers. It wouldn’t surprise me if they’re trying to lock in attractive valuations.
Within Southeast Asia, some markets tend to have protectionism where governments would want to put a limit on foreign ownership, which makes it harder for certain companies to seek overseas listing. This can be the case in Vietnam. Your take?
What I understand is that some governments would like to promote their local stock exchanges. We would be more than happy to accommodate a dual listing. That way, you get the best of both worlds.
There have been talks in the last few years to make it easier for Vietnamese companies to consider an international listing. There are some fantastic companies [from Vietnam] which we have been talking to for a while, and we would hope to see an NYSE listing from these companies within the next two years or thereabouts. It’s up to the regulators and the investment bankers and advisors to work out a structured mechanism that makes it feasible.
If one day, Southeast Asian stock exchanges make it easier for local companies to list via SPACs, why would they choose NYSE over their home market?
There have been hundreds of SPAC listings from both ourselves and Nasdaq this year. SPACs are here to stay, and the US capital market is still the most appropriate for a lot of these companies to consider. The main advantages of a US listing over a purely local listing are access to the sophisticated tech investor base, particularly the US; liquidity; and a certain amount of prestige on the global stage where your global comparables are. The dual-class shareholder structure is established in the US, and virtually all founders want that as well.
When should a company feel it is the right moment to list in the US?
The best advice for that is, prepare early. We typically start engaging with companies and their shareholders one to three years in advance of any IPO. It takes a minimum of two years before they go public by a traditional IPO route, as companies will need a minimum of two years to be fully audited up to international standards. You need to get the right advisors as well. That also takes time.