A primer on SPACs

■ We looked at SPAC regulations round the globe and found that SGX’s rules are largely aligned with the US’s, and less rigid than HKEX’s.
■ Redemption rights and detachable warrants in SG are similar with the US. In HK, only professional investors allowed to invest in SPAC until it has merged.
■ Media reports of potential SPAC sponsors (Tikehau Capital, Vertex Holdings, Novo Tellus) hint of tech-related or new economy listings on SGX.
■ Upgrade to Add. We believe progressive SPAC listings may lift the valuations of the broader SG market. Re-rating catalyst: stronger trading volumes.

Deep dive into SPAC regulations

In this report, we dive into 1) key differences between SGX’s special purpose acquisition company (SPAC) regulations and the United States’s, and those proposed in Hong Kong, 2) potential SPAC targets in the region, 3) benefits and concerns of listing through, or investing in a SPAC, and 4) readthrough of progressive SPAC listings on the SGX.

SGX’s rules closely aligned to the US’s; HK’s more conservative

SGX’s SPAC listing requirements of limiting the sponsor’s promote threshold to 20%, allowing public investors the right of redemption regardless of their voting stance on the business combination, and allowing warrants to be detachable from each ordinary SPAC share are consistent with the market practices in the US. HKEX’s proposed SPAC regulations are more conservative than SGX’s, in our view. The HKEX views favourably sponsors with over HK$8bn of asset management experience, C-suite sponsors from listed companies, and has licencing requirements for sponsors. Further, only professional investors (with portfolios of >HK$8m) may invest in a SPAC in HK until it has merged with a target company, rendering its structure less investor-friendly than SGX and US’s.

Regional unicorns and sponsor’s investees are potential targets

Tikehau Capital, Vertex Holdings and Novo Tellus are reported by Bloomberg to be amongst the first to apply for a SPAC listing on the SGX, with the aim to raise S$200m via their respective IPOs slated to happen by end-2021. Apart from a list of regional unicorns such as Carro, Carousell, and Ninja Van (Figure 3) that could be likely SPAC targets, we opine that the trio could also target their own portfolio of investee companies. For example, Novo Tellus has Novoflex and Tessolve. Tikehau’s investment portfolio centres in Europe, and Vertex (or Temasek’s) portfolio of non-core investments are numerous.

SPACs could boost SGX’s position as a key financial hub in Asia

Incremental listing fees from SPAC may not be material for SGX but we believe the progressive listings of tech-related and new economy companies may the lift valuations of the broader market over time. As SGX’s share price had retreated c.16% (vs. STI’s -1%) since its FY6/21 earnings release (5 Aug 21), its current valuation of 22x CY22F P/E is palatable for an entry, in our view. Our TP of S$10.40 is pegged to 25x CY22F P/E, c.1 s.d. above 10-year mean. Downside risks are shift of trading volumes into HKEX’s A50 product.