Special purpose acquisition companies, a product of boom-time financial engineering, are in danger of becoming extinct in the US. According to SPAC Analytics, there are only seven left. Compare this to the boom year of 2007 when 66 SPACs went public raising US$12 billion.
But SGX wants them here.
A special purpose acquisition company (SPAC) is an investment vehicle that allows investors to invest in private equity type transactions via a listed vehicle. SPACs have no operations but are listed with the intention of merging with or acquiring a company with the proceeds of the SPAC’s IPO. The stock exchanges that allow SPACs have rules to ensure that the SPAC returns most of IPO proceeds to investors if the SPAC fails to do a deal within a fixed period. Shareholders of the SPAC also have to approve the deals.
SGX’s proposals are as follows:
Introduction of SPACs to the Listing Regime
SPACs are shell companies with no prior operating history, seeking an IPO to raise funds for the purpose of using these proceeds to acquire as-yetundetermined operating businesses (“business combination”). SGX has formulated a separate listing framework with safeguards for the introduction of such listed vehicles. Some of the proposed requirements for SPACs are set out below.
(a) Shareholding spread
At least 25% of a SPAC’s total number of issued shares must be held by at least 300 public shareholders.
(b) Quantitative criteria
In order to be listed, a SPAC must have a minimum market capitalisation of S$150 million based on the issue price and post-invitation issued share capital.
(c) IPO proceeds
A SPAC can only hold its assets in cash or cash equivalent short-term securities of at least A-2 rating (or equivalent) until completion of a business combination that meets SGX’s requirements.
Furthermore, at least 95% of the IPO proceeds must be placed in an escrow account to safeguard the assets of the SPAC, and such escrow amount and any interest thereon cannot be drawn down except for the purpose of the business combination.
(d) Issue of securities to founding shareholders
The equity interests which can be given to a SPAC’s founding shareholders without an equity contribution equivalent to that of public shareholders, will be capped at 10% of the SPAC’s post-invitation issued share capital.
A SPAC’s founding shareholders will be required to subscribe for shares amounting to at least 2% of the SPAC’s post-invitation issued share capital and/or purchase warrants amounting to 2% of the IPO proceeds.
(e) Business combination
The value of a business combination should amount to at least 80% of the net asset value of a SPAC (excluding any amount held in the escrow account representing deferred underwriting fees).
The business combination must be approved by a majority of votes cast by independent shareholders at a general meeting. For the purpose of voting on the business combination, the founding shareholders and their associates are not considered as independent.
Each independent shareholder voting against the business combination shall have the right to redeem his shares for a pro-rata share of the cash in escrow, provided that the business combination is approved and completed. If independent shareholders holding more than 40% shareholding interests choose to convert their shares into cash, the SPAC may not proceed with the business combination.
Where key executives resign prior to the completion of the business combination, the SPAC’s directors shall have the authority to review and determine an appropriate course of action, including liquidation of the SPAC.
A SPAC must complete a business combination that meets SGX’s requirements within three years. Otherwise, the SPAC will be liquidated and its assets distributed to shareholders. Founding shareholders and their associates are to waive their right to participate in the liquidation distribution in respect of all equity securities owned or acquired by them prior to or pursuant to the IPO.
Baker & McKenzie