New Singapore Listing Rules for SPACs | Dechert LLP

Background: SPACs are shell companies that were founded to raise capital from an IPO with the sole purpose of using the proceeds to acquire one or more operating companies. SPACs are usually founded and initially financed by experienced founding shareholders, often also referred to as sponsors, who then use their know-how and track record to acquire attractive private companies and thus offer them a faster alternative route to listing. The majority of the IPO funds raised are typically deposited in an escrow account and reserved primarily for the completion of a business combination through a merger, share swap, asset acquisition, or other method of business combination. After its IPO, a SPAC typically has 18-24 months to complete the business combination and if it does not it will be liquidated and all fiduciary funds returned to investors (public and non-public) in accordance with the appropriate trust agreement.

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The Singapore Stock Exchange (“SGX“) Recently revised its licensing rules for purpose acquisition societies (“SPACs“On the mainboard of the SGX. Sponsors considering listing on SPAC may now consider listing in Singapore as previous SGX listing rules precluded SPACs from listing on SGX. Although SPACs are not new to Asia (the Korea Stock Exchange first listed SPAC in 2010), SGX’s revision of their listing rules is the most recent move by the Asia-Pacific exchanges to enter the global SPAC listing compete. Implementation of the detailed SGX regime for SPAC listings is expected to attract and promote investment opportunities in Singapore.

In recent years SPACs have become a major force in global capital markets. In the 4th quarter of 2020, SPAC listings accounted for 30% of the global IPO (“initial public offering“) goes. Market observers assume that SPACs will remain an important source of growth in the stock markets in the years to come. In fact, there were a total of 424 SPAC IPOs in the United States by 2021, which shows that the SPAC concept is still buoyant in the market and that investors continue to have an appetite for investments in attractive private companies.

However, interest in SPAC listings may wane in the US, in part due to increased scrutiny by state regulators – there were only 76 SPAC IPOs in the second quarter of 2021 compared to the 310 SPAC IPOs in the first quarter. This slowdown in the US SPAC market presents an opportunity for Asian stock exchanges, which have remained largely untapped markets to SPACs. With Singapore as an example, other exchanges in comparable jurisdictions such as Hong Kong and Indonesia are likely to follow their own admission rules for SPACs.

Singapore’s new listing framework

On September 2, 2021, the SGX published its updated mainboard rules in the Proposed Listing Framework for SPACs (Response to Comments on Consultation Paper) (the “Advisory paper”) Together with a practical note to provide issuers with further guidance on the SGX’s requirements for SPACs. The consultation paper was the result of months of consultations and feedback from various industry players, including banks, law firms, accountants and venture capital funds.

Requirements for the SPAC listing

The updated mainboard rules require the following key attributes from SPAC exhibitors:

A. Market Capitalization: A minimum of US $ 150 million market capitalization based on the issue price and post-invitation share capital;

B. Participation requirements:

(i) at least 25% of the total number of shares issued are held by no fewer than 300 public shareholders at the time of the IPO;

(ii) SPACs may not adopt a two-class share structure at the time of listing; and

(iii) Sponsors must hold a minimum capital of between 2.5% and 3.5% at the time of listing, but may not hold more than 20% of the shares in the total issued share capital of SPAC;

C. Moratorium / blocking period: The sponsors, the management team, the majority shareholders and the investors before the IPO and their respective partners are subject to a moratorium / blocking period for their direct and indirect holdings between the listing and the closing of the SPAC business combination;

D. Share Price and Trading Restrictions:

(i) the issue price at the time of listing must be at least US $ 5 per Share;

(ii) SPAC Shares may consist of a Share and a Warrant (or other convertible security) and any warrant (or other convertible security) issued with a SPAC Share may be separate from such SPAC Share and traded separately;

(iii) any separately traded warrant (or other convertible security) on SGX must not be (i) lower than the price of the SPAC entity or (ii) exercisable prior to the completion of the business combination by SPAC;

e. Trust agreements:

(i) until the business combination, at least 90% of gross proceeds from the IPO must be held by an independent trustee;

(ii) interest or income from the trust funds may be drawn for the purpose of the business combination or liquidation;

(iii) The trust agreement must, among other things:

• subject to Singapore law;
• require the trustee to disclose confidential or other information to SGX upon request;
• require the trustee to take appropriate steps to ensure the proper custody, custody and control of funds held in trust;
• the partial return of the trust fund to shareholders in the event of the SPAC being liquidated or if those shareholders vote against the proposed business combination; and
• Include a three month notice period for both the Trustee and the SPAC to notify SGX of the termination of the Trust Agreement;

F. Dilution limit: The maximum percentage dilution for shareholders that results from the conversion of warrants that are issued during the IPO is limited to 50% of the share capital of SPAC (including the promotion) provided for in the invitation; and

G. Funding: The amount of total equity stakes in SPAC awarded to sponsors, the management team and their employees in return for nominal or no consideration is generally permitted up to 20% of the issued share capital of SPAC on a fully diluted basis immediately after Completion of IPO, but SGX reserves the right to decide whether such an allocation is appropriate.

Analysis of the SGX listing

In addition to defining the basic requirements for an SGX-listed SPAC, the consultation paper also described the elements that SGX will take into account in its listing analysis. In determining whether a SPAC is eligible for listing, SGX may, in its sole discretion, consider any factors it deems relevant, including, but not limited to:

(a) the track record and reputation of the sponsors and the experience and expertise of the issuer’s management team;

(b) the business objectives and strategy of the issuer;

(c) the nature and extent of the remuneration of the management team;

(d) the extent and nature of the sponsor’s and the management team’s stake in the issuer, including those acquired by the sponsors, the management team and their affiliates at par or without consideration prior to or upon initial public offering; and

(e) Align the interests of the sponsors and the management team with the interests of other shareholders.

Requirements after listing

The updated listing rules also set out the applicable deadlines and requirements for SGX-listed SPACs. After listing, a SPAC has 24 months from the date of listing to enter into a legally binding business combination agreement and up to an additional 12 months from that agreement to complete the business combination. The entire process is subject to an overall maximum period of 36 months from the date of listing. Any other extension may be permitted under certain circumstances by filing with SGX and approving the independent shareholders of SPAC.

The business combination must also have a market value of at least 80% of the amount in the escrow account when the binding transaction is executed. This excludes amounts in the escrow account that represent deferred subscription fees or other liabilities arising from income from that account.

A detailed list of changes to the SGX’s mainboard rules can be found in Appendices 2 and 3 of the consultation paper here.

Implementation of the detailed SGX regime for SPAC listings is expected to attract and promote investment opportunities in Singapore while other Asian financial centers struggle to introduce their own SPAC regulations. In the first quarter of 2021, stock exchanges in Asian jurisdictions, namely Hong Kong and Indonesia, considered introducing new listing rules or adapting their existing listing rules to explicitly allow SPAC listings. Until the current listing rules are introduced or adjusted, SPACs cannot be listed in Hong Kong or Indonesia.

Advice on Hong Kong SPAC listing rules

In March 2021, the Securities and Futures Commission of Hong Kong and the Stock Exchange of Hong Kong (“HKEx“Began by examining the possibility of a SPAC listing in Hong Kong in order to further improve the city’s competitiveness as an international financial center while protecting the interests of investors. At the time of this writing, HKEx is still investigating the feasibility of a SPAC framework and has announced that it will launch a consultation on changes to its listing rules to enable SPAC listings in the third quarter of 2021. Such a consultation is likely to take place via the publication of a consultation paper on the HKEx website inviting interested market participants to provide feedback to the HKEx within a certain period of time.

Some market participants in Hong Kong have speculated that it might be difficult to reconcile the new, permissive SPAC regime with the city’s regulatory stance on backdoor listings in recent years. This inherent tension could explain HKEx’s delay in initiating its consultation. However, observers believe that given the announced timetable, HKEx will shortly publish a draft Hong Kong SPAC listing regime for consultation with the market.

https://www.jdsupra.com/legalnews/new-singapore-listing-rules-for-spacs-6188466/