The quality controls for these cash-box floats is the quality of the promoter (usually in other countries, dealmakers with a reputation for making money for investors); the financial sponsor (usually investment banks with sterling reputations) and the high % of shareholder approval. If 40% object to a deal, the deal is effectively dead in the US. Something SGX is imitating.
But things can go wrong.
In the US one SPAC that went badly wrong is the one that bot GLG Partners in 2007. The UK-based private equity got a US listing via a SPAC and a stock market valuation of US$3.4bn.
In May 2010, hedge fund manager Man Group agreed to buy GLG p for just US$1.6bn, and was criticised for paying 20x 2009 earnings.
Another problem is when shareholders have to cough up for a rights issue after the SPAC share price falls. In the UK, an SPAC was launched to buy up insurance companies. It was listed at 100p a share but several deals later the share price is 62p and the SPAC is buying another insurer. Shareholders cannot complain as that was the purpose of SPAC.
Back to SGX, following the debacle of Pru’s secondary listing here, low volumes and (not SGX’s fault, cancellation of rights issue and change of Pru’s Asian strategy from “bet the ranch” to returning to its successful “growing organically” , SGX cannot afford any more balls-up.
This at time when S-Chips (remember this SGX initiative?) are imploding left right and centre: Sino-Environment is in judicial mgt, SGX has also reprimanded investment holding company E3 Holdings and six of its directors for breaches of listing rules and failures of corporate governance*, and reported the directors to MAS>.
*SGX said E3 had failed to announce the disposal of its stake in Song Yuan Petrochemical to an interested person and for failing to seek shareholders’ approval for selling the stake. E3 had also not disclosed material agreement and accurate information on its investments in China.