Out-Law / Your Daily Need-To-Know

Singapore Exchange (SGX) has launched a consultation on special purpose acquisition companies (SPACs), aiming to find a balanced regime and to reduce the risks of excessive dilution for long term investors and the rush for sponsors to de-SPAC.

SPACs are shell companies that raise funds through an IPO to acquire an existing company. After raising funds, SPACs sponsors are given two years in most jurisdictions to 'de-SPAC', i.e. – to find a target company and complete an acquisition. If no suitable deal is secured, the SPAC is liquidated, and the funds returned to shareholders.

SGX has proposed that SPACs have at minimum S$300 million ($347m) market capitalisation and at least 500 public shareholders holding 25% of the total share at initial public offering (IPO) – 90% of the IPO proceeds has to be held in escrow for the target company to be acquired.

SGX also intends to require a minimum sponsor participation ratio of between 1.5% to 3.3%, depending on the SPAC's market capitalisation.

Business combination has to be completed within a three-year time frame and must include one core business whose fair market value constitutes at least 80% of the gross IPO proceeds in escrow.

SPACs would have to be liquidated in Singapore if there was a significant change in the circumstances of the founding shareholders or management team that were critical to the successful founding of the SPAC or completion of the business combination before completion, unless independent shareholders vote for the continued listing of the SPAC.

SGX has also proposed that an appointed financial adviser, who is an approved issue manager, advise on the de-SPAC and an independent valuer value the target company.

According to SGX, any de-SPAC will require "prospectus-level disclosures" when the target business is acquired. A shareholders' circular with information about financial position and compliance history, must be submitted to SGX for review.

The consultation on the proposals will close on 28 April.

Tax and private wealth expert Valerie Wu of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, the law firm behind Out-Law, said: "Singapore's SPAC framework must strike a balance between liquidity and quality deals for sustainable businesses."