SPECIAL purpose acquisition companies, or SPACs, have been the rage in global markets since mid-2020. Almost 50 percent of the $230 billion raised globally in new listings last year went to SPACs. Lately, all eyes are on Southeast Asia as the next SPAC hunting ground.
But what exactly is a SPAC? To enlighten finance professionals about this red-hot sector, the International Association of Financial Executives Institutes (IAFEI) through its Asian Group held its first global webinar on this topic last week.
Three resource persons were invited during the webinar. They represented three of IAFEI’s Asian member-institutes, namely: the Financial Executives Institutes of the Philippines (Finex); the Financial Executives Institute (FEI)-Chinese Taiwan; and, CFO Vietnam.
Atty. Abelardo “Billy” V. Cortez, former Finex president and presently IAFEI executive committee member, described the SPAC as essentially a shell company or a blank-check company because it does not have any actual operation. Instead, it is created solely for the purpose of taking a private company public.
Cortez explained that SPACs raise money through an initial public offering (IPO). Typically, the cash raised would come from a few sponsors who are all experienced in terms of management in the world of business. These sponsors will own 20-percent equity in the SPAC with the 80 percent to be held by outside shareholders through units offered in the SPAC’s IPO.
The SPAC is then given 24 months by state regulators to acquire or merge with its target company, which is defined as a fully-operating private company. If it is unable to do so, all the money raised including interest earnings will be returned to the sponsors. But if the SPAC succeeds in its target acquisition, the two entities will now combine within the SPAC and emerge as a publicly listed operating company.
“That would be less expensive than doing a traditional IPO,” said Cortez, who is also an independent board director of First Metro Securities Corp.
Dang The Duc, managing partner of Vietnamese commercial law firm Indochine Counsel, discussed his own SPAC initiatives in Singapore and Vietnam. For his part, FEI-Chinese Taiwan chair David Chow spoke about his SPAC experiences in Sillicon Valley, USA. The webinar’s moderator was Finex member Marilou C. Cristobal, chair of Multinational Investment Bancorp.
According to Cortez, billions of dollars have been raised by SPACs from the US market alone, while Europe is not far behind. Nikkei Asia reported that amid the SPAC boom in America, the Philippines is trailing behind in Asian IPOs. This could be attributed to the lack of a regulatory framework for SPACs deals involving Filipino startups.
Universal Entertainment Corp. of Japan announced early this year that it will pursue the SPAC route to bring its Okada Manila casino-resort public. At that time, Okada was aiming for a Nasdaq listing with Universal Entertainment as sponsor, but none of the offers from US-based SPACs have materialized so far.
On the other hand, Singapore-based Grab Holdings Inc. is on track to go public by the fourth quarter of 2021. The ride-sharing and delivery unicorn is one of Southeast Asia’s biggest tech startups and it plans to have an IPO in the US through a merger with a Nasdaq-listed SPAC, Altimeter Growth Corp., at a valuation of $39.6 billion.
Golden Gate Ventures, a global venture capital fund, disclosed that more than 40 SPACs are scouring the ASEAN region for potential acquisitions. Their targets include Indonesia’s tech giant GoTo Group (the merger of ride-hailing app Gojek and e-commerce player Tokopedia), as well as Singapore’s digital marketplace Carousell, which previously acquired the classified ads site of OLX Philippines.
Indeed, SPACs are taking the international capital markets by storm. They have powered investor interest despite the uncertainty brought about by the Covid-19 pandemic and the global economic slump.
Joseph Gamboa is the co-chairman of the Finex Annual Conferences for 2020-2021, chairman of the Finex Business Columns Subcommittee and director of Noble Asia Industrial Corp. The views expressed herein do not necessarily reflect the opinion of these institutions and the BusinessMirror.