The Singapore Exchange (SGX) is close to finalising the framework for Special Purpose Acquisition Companies (SPACs) to list, but stakeholders close to these discussions have voiced concerns over key items in the bourse’s proposal.
SGX, which began a public consultation to study the feasibility of SPAC listings in January, is understood to be setting a minimum SPAC value at $200-300 million, with an eye to allowing listings in the third quarter of this year.
SPACs are blank cheque firms that raise capital solely to acquire private entities with the aim of eventually taking them public.
Multiple venture capitalists DealStreetAsia spoke to have expressed concern over the high SPAC value for Southeast Asia’s still-nascent market, which does not yet have enough tech unicorns to meet these criteria.
According to industry players, a SPAC size of $200-300 million will mean that its target companies will likely have to be valued between $1 billion and $1.5 billion. In Southeast Asia, there are about 15 unicorns belonging to this category, including prominent names like Grab, Tokopedia and Gojek, which have already been sought by US-listed SPACs such as Bridgetown Holdings and Altimeter Growth Corp.
Several sources caution that SGX is in danger of missing the SPAC boat.
“What’s going to happen is that all of Southeast Asia’s unicorns will flock to the US instead of Singapore. By Q3 or Q4 this year, there will be nothing left for the Singapore market, and SGX will find itself with poor quality companies all over again,” says a Singapore-based technology investment banker, who declined to be named.
Several stakeholders who have engaged with SGX are advocating a lower minimum SPAC value of $100 million and below, which would turn the SGX into a more competitive exchange by capturing the “mid-market” segment in Asia — something other bourses like Nasdaq, NYSE and HKeX have yet to do.
But SGX is said to be concerned with the lack of high-quality SPAC sponsors in Asia, and as such, has chosen to keep the minimum SPAC value high to prevent the bourse from becoming a destination for low-grade SPACs.
“The SGX needs to set itself apart and bring something different to the table. It shouldn’t be going head-to-head with the US, which is already the world’s deepest capital market. This is a fight SGX won’t win,” says a Singapore-based investor overseeing a Temasek-backed growth-stage fund.
Weak liquidity remains one of SGX’s core and longstanding problems, which has more recently led to a spate of delistings from its Mainboard and secondary listing platform Catalist. SGX statistics reveal that the total number of listed securities has slipped 10% in the last five years to 695 companies.
SGX in 2016 vs 2021 Feb 2016 Feb 2021 % difference
Total Number of Listed Securities 771 695 -9.9%
Total Market Capitalisation ($million) S$872 billion $888.7 million 1.9%
Securities Daily Average Traded Value (SDAV) S$1.3 billion S$1.4 billion 7.7%
Total Securities market turnover value S$24.1 billion S$25.8 billion 7.1%
Two sources disclosed that a consortium of Singaporean investors including GGV Capital’s Jenny Lee, Monk’s Hill Ventures’s Lim Kuo Yi and Quest Ventures’s James Tan had previously engaged in private discussions with Singapore’s Ministry of Trade and Industry (MTI) and other government agencies to find a solution.
One of the proposals presented was the setting up of a separate exchange akin to the Shanghai Stock Exchange Science and Technology Innovation Board, or better known as China’s STAR Board, which would be more friendly to Singaporean tech listings. The discussions were first conceived around 2-3 years ago and accelerated in the last 3 months, but one insider source does not think that the SGX will pull this off anytime soon.
“The SGX is already too late,” says a source from a Southeast Asian VC firm with several soonicorns in its portfolio. “They had conversations about SPACs in 2010, and again just a few years ago. They should have done it then. This window is going to close very soon.”
Quest Ventures and Monk’s Hill Ventures declined to comment for the story. DealStreetAsia has contacted GGV Capital for a comment.
In the meantime, Southeast Asia’s unicorn and soonicorn startups are expected to continue to grow in size and number as venture capitalists raise and deploy larger and larger amounts of capital. According to DealStreetAsia’s SE Asia’s VC Funds: Q4 2020 Review, a total of $4.08 billion was raised by nine global funds in 2020, a massive jump from $867 million by five funds in 2019.
Industry observers say venture-backed startups in Indonesia and Thailand will continue to find a home on their local exchanges when it comes to IPO exits.
According to Deloitte’s Southeast Asia IPO Capital Market 2020 report, Thailand alone raised $4.4 billion in IPO proceeds to account for 62% of total funds raised across the entire region. Indonesia on the other hand topped the charts for the third year running with a record 51 new IPOs, the highest across Southeast Asia.
The same can’t be said for Singapore’s homegrown upstarts though.
“Temasek and GIC can afford to take a more active role in bringing some of these markets to IPO by being an anchor investor,” advised one Southeast Asian investor. “They’re the best placed to do this as one of the world’s biggest global asset managers.”
The core problem of liquidity needs to be resolved first. SGX is in the best position to champion the Singapore story, but it needs to do this by capturing its Singapore-bred companies on home ground, rather than losing them to overseas markets, market observers point out.
SGX has declined to comment for the story.