Stock exchanges in the Association of Southeast Asian Nations appear to be getting little love, even as the bloc’s tech startups eye opportunities to go public by combining with special purpose acquisition companies, or SPACs, listed in the U.S.
ASEAN saw 23 initial public offerings that raised a combined $2.4 billion in the first quarter, down from 32 that generated $3 billion over the same period last year, figures from consultancy EY showed.
The number of companies that went public in Singapore and the Philippines was lower than regional peers, with each country having only one IPO during the quarter. In contrast, Indonesia saw 12 IPOs bringing in $218 million while Thailand raised $1.6 billion from five and Malaysia $47 million from four.
All Southeast Asian IPOs stacked together in the three months, however, have been dwarfed by the region’s biggest unlisted startup, Singapore ride-hailing giant Grab, which is going public in the U.S. via a SPAC deal under Silicon Valley-based Altimeter Capital for a whopping $39.6 billion valuation.
Also known as a “blank check” company, a SPAC is a listed shell corporation set up with the intent to acquire an unlisted target company. This allows the target company to list on public exchanges without having to go through the arduous IPO vetting process.
“The first quarter is a typically muted period for IPOs in ASEAN, as companies gear up for capital market activities,” said Max Loh, ASEAN IPO head at EY, of the bloc’s lackluster performance.
EY observed that overall, the Asia-Pacific region recorded 200 IPOs raising $34.3 billion, with greater China recording a year-on-year 51% increase in deals at 133 and a 121% increase by proceeds at $28.9 billion. “With markets awash with liquidity, global IPO deal numbers and proceeds have posted the best performance witnessed in 20 years,” said EY’s Paul Go.
Culminating in Grab’s SPAC deal, the U.S. frenzy surrounding blank check companies has powered investor interest amid the uncertainty brought on by the coronavirus pandemic and global economic slump.
According to financial data provider Refinitiv, it took only the first 10 weeks of this year for global SPAC IPO quantities — largely from the U.S. — to surpass 2020s record SPACs.
A total of 258 SPACs were brought to market during those weeks, compared to 256 in all of 2020. As of March 30, Refinitiv’s data recorded $90.6 billion in proceeds and additional shares generated from U.S.-listed SPACs in 2021.
Grab’s deal with Altimeter has heated up the race for tech startups in Southeast Asia to seek deals with SPACs. The company’s Indonesian rival Gojek and e-commerce giant Tokopedia, also from Indonesia, are reportedly being targeted by SPACs.
ASEAN’s importance to digital companies is widely recognized. The gross merchandise value of the region’s internet economy is expected to grow threefold to $300 billion by 2025 from 2020, according to research by Google, Temasek and Bain & Co.
But stock exchanges in the region have been slow to realize opportunities for their own tech players through SPACs. Malaysia has dabbled in SPACs within its financial markets but has never rivaled the boom seen in the U.S.
Singapore, meanwhile, plans to eventually ride the SPAC wave. The nation has proposed a regulatory framework and is awaiting feedback from market players in the hope of finalizing rules around the middle of the year.
RegCo, the Singapore Exchange’s regulatory arm, has proposed that SPACs have a minimum of $300 million Singapore dollars ($222.6 million) in market cap, and must acquire their target in three years. With no SPACs allowed yet, SGX’s only IPO on its main board this year is that of manufacturing player Aztech Global.
“Our listing on the SGX mainboard will provide us with the resources to grow and capture greater market share, and in turn deliver value to our shareholders,” said Aztech CEO Michael Mun of his company’s decision to go public in Singapore.
According to EY, IPO proceeds from Singapore hit $223 million in the first quarter.
The SGX’s move to allow SPACs could potentially lift IPO numbers for the stock exchange in the short term, said Mak Yuen Teen, an associate professor at the National University of Singapore Business School. “There may be a temporary boost like taking steroids,” he told Nikkei Asia. SGX’s decision to allow SPACs may also lift ASEAN’s overall IPO performance.
But Mak said that startups and others will likely choose SPACs based on the ability to generate valuations and liquidity, for which the U.S. now has a proven track record.
ASEAN exchanges, on the other hand, are still struggling to generate even traditional IPOs, as EY’s data for the first quarter has shown. Even as the U.S. quickly welcomes Southeast Asia’s high-profile SPAC deals, Mak said the first few SPAC examples on SGX could be of better quality, in terms of sponsors and candidates.
“Then the quality may deteriorate and we have a wave of SPAC scandals.”
This story was first published on Nikkei Asia.