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29/06/22
SPACs In Singapore: A Look Into The Pioneering SGX-Listed SPACs
Against the backdrop of growing global interest in special purpose acquisition companies (SPACs), the Singapore Exchange (SGX) introduced new rules (Rules) that permit the listing of SPACs on the SGX Mainboard, with effect from 3 September 2021, making it the first stock exchange in Asia to allow SPAC listings.[i]
A SPAC is a company with no prior operating history and revenue-generating business or asset at the point of its initial public offering (IPO), and which raises proceeds for the sole purpose of undertaking a business combination (de-SPAC) in accordance with the business strategy and acquisition mandate disclosed in the prospectus issued in connection with its IPO.
In January 2022, SGX welcomed its first three SPAC listings on the SGX Mainboard – Vertex Technology Acquisition Corporation (VTAC); followed by Pegasus Asia (Pegasus); and lastly Novo Tellus Alpha Acquisition (NTAA) – all of which Allen & Gledhill had the privilege of advising on, in various capacities. As of the date of this article, the three SPACs remain the only SPACs to list on the SGX.
Leveraging on the authors’ close involvement in the three listings, this article will discuss notable characteristics of and differences between the three SPAC IPOs, and the anticipated impact on the SGX SPAC framework and potential SPAC issuers going forward.
The First Three SGX-Listed SPACs
The development of the SGX SPAC framework had taken into account market practice, in particular that of the United States (US), which is well-recognised as the most successful and established SPAC market globally, and US SPAC listing rules, while introducing SGX-specific features and safeguards to further codify some of the market conventions with a focus on investor protection and aligning the interests of all stakeholders.[ii] On this note, it is highlighted that while Pegasus was the first SPAC backed by international sponsors to be listed on the SGX, it was already the third SPAC globally for the sponsor group,[iii] which had prior to the listing of Pegasus on the SGX successfully listed two other SPACs on Euronext Amsterdam.[iv] In this regard, Pegasus was structured in certain aspects based on the two European SPACs, albeit with certain modifications for the SGX listing, with marked differences from VTAC and NTAA.
Notwithstanding, there were several common trends between the three SGX SPACs. Firstly, all three SPACs offered units in their IPO at S$5 per unit, in line with the minimum issue price prescribed under the Rules[v] (for context, based on market practice, the issue price for US SPACs is typically US$10). In line with US market practice, each such unit comprised one share and a fraction of a warrant, which automatically trade separately after 45 days, although in the case of VTAC only 0.3 warrant per unit was issued at IPO, while an additional 0.2 warrant per share is to be issued to shareholders only on or around de-SPAC.
In terms of target industries, while there are no restrictions under the Rules, all three SPACs are generally aligned in focus, targeting new-economy, technology-focused businesses, including but not limited to artificial intelligence, FinTech, medical life sciences, etc.[vi] Apart from that, NTAA also has a focus on industrials, including the digital transformation of the manufacturing industry as well as next generation semi-conductors. Geographically however, while VTAC has not limited itself to any region, Pegasus’ focus is in the Asia Pacific and NTAA’s is in the Indo Pacific.
The first key difference between Pegasus and the other two SGX SPACs is its sponsor profile. As aforementioned, Pegasus was backed by a sponsor group comprising two corporates (Tikehau Capital and Financière Agache) and two individuals (Diego De Giorgi and Jean Pierre Mustier). On the other hand, both VTAC and NTAA had a single sponsor – Vertex Venture Holdings, and Novo Tellus PE Fund 2, L.P., respectively. This had an impact on the transaction structure, as described in further detail below.
Among the three SGX SPACs, VTAC raised a total of S$200 million in its IPO, as compared to S$150 million raised by each of Pegasus and NTAA (all amounts excluding over-allotment), in line with the minimum market capitalisation requirement under the Rules.[vii] However, there were further differences of note between the offering structures.
|
IPO Structure |
VTAC |
Pegasus |
NTAA |
|
Cornerstone Tranche |
S$111m |
Nil |
S$80m |
|
International Placement Tranche |
S$56m |
S$125m |
S$47.5m |
|
Singapore Public Offer Tranche |
S$3m |
S$3m |
S$2.5m |
|
Sponsor(s) Subscription |
S$30m |
S$22m |
S$20m |
|
Total |
S$200m |
S$150m |
S$150m |
The table above reflects the breakdown of the total IPO proceeds raised by each of the three SPACs. VTAC and NTAA both offered a substantial proportion (more than 50 per cent) to cornerstone investors, but while Pegasus’ IPO did not include any cornerstone tranche, this was made up for in the international placement tranche, which was sized at more than double that of the other two SPACs. Another point of note is that while the retail tranche was similar in size for all three SPACs, Pegasus’ larger total offer size resulted in it falling below the minimum 5 per cent required for allocation to retail investors under the Rules,[viii] for which Pegasus obtained a waiver from the SGX.
As is common for traditional IPOs on the SGX, all three SPAC IPOs were also subject to an over-allotment option. Both VTAC and NTAA adopted the conventional greenshoe structure which involved a borrowing of units from their respective sponsors to cover the over-allotment by the SPAC in its IPO. On the other hand, having the sponsors’ stake split among four sponsors meant that no single sponsor could act as sole unit lender to facilitate a greenshoe for Pegasus. Instead, Pegasus adopted a brownshoe (or otherwise known as a reverse greenshoe), which is more commonly seen in European markets and was in fact adopted for its sponsor group’s first European SPAC IPO in April 2021.[ix] Under the brownshoe structure, instead of the additional units being issued only at the end of the stabilisation period, the SPAC issued the over-allotted units upfront at listing, and the stabilisation manager (being one of the underwriters) withheld the corresponding portion of the IPO proceeds to undertake stabilisation actions and, at the end of the stabilisation period, returned the units purchased in the course of stabilisation to the SPAC through the exercise of a put option.
Apart from the units offered at IPO, SPACs typically issue or agree to issue additional securities to their sponsor(s) at nominal or no consideration (the sponsors’ promote). Under the Rules, this is limited to a maximum of 20 per cent of issued shares at IPO (on a fully diluted basis).[x] For all three SPACs, while the full 20 per cent was allocated in the form of founder shares, there are differences in their vesting schedule and pricing. 100 per cent of the founder shares for NTAA are to be automatically converted into public Class A shares upon de-SPAC. For VTAC, the issuance of the founder shares is subject to a time and price based vesting, with the allotment of the first 49 per cent at only 12 months after de-SPAC, and the remaining 51 per cent to vest upon certain conditions with reference to VTAC’s return to shareholders being met. For Pegasus, up to 50 per cent of the founder shares will be automatically converted into public Class A shares upon de-SPAC, while the remaining 50 per cent will vest upon Pegasus’ market price hitting certain targets.
In addition to the founder shares, all three SPACs’ sponsors had also committed additional financing in the form of warrants, via a private placement concurrent with the IPO, which form part of the at-risk capital. NTAA’s sponsor further committed to an additional S$2 million in the form of contingent capital warrants that the SPAC has the right to call for from the sponsor in the event of a shortfall of funds. This is similar to VTAC, as out of the S$10 million in private placement warrants that the sponsor agreed to subscribe for, only S$8 million in private placement warrants was issued at IPO while the remaining amount can be issued at any time up to de-SPAC.
For Pegasus, the private placement warrants were issued at a unit price of S$0.02 each, as compared to the S$0.50 issue price for the other two SPACs. While this appears to be a huge discrepancy, the difference was simply due to the allocation of pricing between the founder shares and warrants, which together form the at-risk capital of the SPAC. Accordingly, given the higher issue price of 91.2 cents each for Pegasus’ founder shares (compared to VTAC’s 0.25 cents and NTAA’s 0.33 cents), the at-risk capital contributed by Pegasus’ sponsors was in aggregate similar to the amount contributed by VTAC’s and NTAA’s respective sponsors. In addition, paralleling their precedent European SPACs, Pegasus’ sponsors unconditionally and irrevocably committed to putting in a further S$40 million at de-SPAC by way of a forward purchase agreement, and to fund excess costs prior to de-SPAC, the sponsors additionally agreed to extend a sponsor loan of up to S$2 million, which can be repaid by Pegasus issuing additional units in lieu of cash repayment.
These units, shares and warrants held by the three SPACs’ sponsors are all subject to a moratorium for varying periods post-IPO. In the case of NTAA, the IPO units purchased by the sponsor are locked-up for the minimum period prescribed under the Rules, namely from IPO to six months after the de-SPAC, with a further six-month moratorium thereafter on 50 per cent of such securities if the resulting issuer after the de-SPAC meets certain criteria.[xi] On the other hand, there was a commercial agreement for the promote to be locked-up for a longer period until 12 months after de-SPAC. For Pegasus, all the sponsors’ securities, including the promote and any additional shareholding at de-SPAC, will be locked-up until 12 months after de-SPAC. This is however subject to certain exceptions, including where Pegasus’ market price equals or exceeds S$6.00 for a period beginning six months after de-SPAC, subject to compliance with the moratorium requirements under the Rules. VTAC’s case is similar in that the moratorium on the sponsor’s IPO units and promote is effective until 12 months after de-SPAC, but VTAC had obtained a waiver in respect of securities purchased on the secondary market, on the basis that, among others, there is sufficient alignment of interest achieved in respect of the securities already being locked-up.
A final point to highlight is that while Pegasus had successfully obtained from the SGX a waiver from the moratorium requirements to allow the transfer of founder shares to its Chief Financial Officer as part of his remuneration, none of the three SPACs will pay their directors’ compensation out of the promote, unlike in the US where this is commonly done.[xii]
Structuring Future SPACs In Singapore
While there have been some differences in the structuring of the first three SGX SPACs as detailed to some extent in the foregoing paragraphs, they were still largely aligned across the board and in line with the SGX SPAC framework, due principally to the fact that the SGX framework had been developed taking into account market practice and rules on SPACs particularly in the US.
Given that the SGX SPAC framework is still in its nascent stages, it is expected that there will be some fine-tuning as it continues to develop. For example, all three SGX SPACs had successfully obtained a waiver from the SGX to entitle the SPACs’ sponsors and management to liquidation distributions in respect of the IPO units subscribed for by them at full consideration. While such waivers may become commonplace for SGX SPACs going forward, it remains to be seen whether further deviations from the structure of the initial three SPACs will be acceptable to the Singapore regulators, who may scrutinise any such proposal against the original focus on investor protection in the development of the SGX framework.
Footnotes:
[i] For further details on the framework, please refer to SGX’s Responses to Comments on Consultation Paper on SPACs (accessible at https://www.sgx.com/regulation/public-consultations/20210331-consultation-paper-proposed-listing-framework-special), which was released on 2 September 2021.
[ii] SGX, FAQ on SPACs, accessed 14 April 2022 at https://www.sgx.com/research-education/securities-products#SPACs.
[iii] Pegasus Asia, Press Release dated 20 January 2022, accessed 14 April 2022 at https://links.sgx.com/FileOpen/PegasusAsia%20-%20Press%20Release%20Close%20of%20Offer%20dated%2020%20January%202022.ashx?App=Announcement&FileID=698279.
[iv]See https://live.euronext.com/en/ipo-showcase/pegasus-acquisition-company-europe-bv and https://live.euronext.com/en/ipo-showcase/pegasus-entrepreneurial-acquisition-company-europe-bv.
[v] SGX Mainboard Rules, Rule 210(11)(d).
[vi] For further details, refer to the IPO prospectuses of the three SPACs, which can be accessed at https://www.sgx.com/securities/ipo-prospectus.
[vii] SGX Mainboard Rules, Rule 210(11)(b).
[viii] SGX Mainboard Rules, Rule 233A(1).
[ix] IPO prospectus of Pegasus Acquisition Company Europe B.V., which can be accessed at https://live.euronext.com/en/ipo-showcase/pegasus-acquisition-company-europe-bv.
[x] SGX Mainboard Rules, Rule 210(11)(f).
[xi] SGX Mainboard Rules, Rule 210(11)(h), read with Rule 229.
[xii] Fortney, Hunter, ‘SPAC Attack: An Examination of SPAC Director Compensation and Its Legal Implications’ (August 11, 2021), accessed 14 April 2022 at https://ssrn.com/abstract=3911337.
Tan Tze Gay
Tze Gay is the Head of the Equity Capital Markets Practice at Allen & Gledhill. Her areas of expertise span equity and debt capital markets and corporate regulatory and compliance.
She has extensive experience acting for issuers and underwriters on a wide range of innovative, high value and complex transactions, from initial public offerings and listings on the Singapore Exchange as well as regional and international exchanges to global debt offerings. She continues to advise listed corporates and business trusts after listing on their follow-on equity offerings, debt offerings, acquisitions and disposals and corporate regulatory and compliance advisory matters.
Tze Gay has been a Partner since 1992.
Rhys Goh
Rhys specialises in capital markets and corporate regulatory and compliance.
He has extensive experience acting for issuers, underwriters and shareholders on a wide range of equity-linked products, including initial public offerings of companies, business trusts and real estate investment trusts, spin-off listings, dual listings on securities exchanges in other jurisdictions and block trades of securities.
Rhys has advised on some of the most significant initial public offerings and equity fund raisings on the Singapore Exchange. He continues to advise issuers after listing on their equity fund raisings as well as their ongoing corporate and compliance work.
Kern Wong
Kern’s areas of practice include equity and debt capital markets and general corporate and compliance advisory work for Singapore-listed companies.
He has advised issuers and underwriters on capital markets transactions including initial public offerings of companies and business trusts, rights issues, placements, establishments of debt issuance programmes, offerings of straight debt, retail bonds and perpetual securities, liability management exercises and listings of debt securities on the Singapore Exchange. He also advises issuers on post-listing regulatory and compliance matters.
