Growing interest in Asia for blank check companies

Wall Street’s hottest trend could be heading to Asia.

PSPCs – or special purpose acquisition companies – are generating interest in Asia and the first wave of local listings will be a test of investor appetite in the region, experts told CNBC.

“I think there is definitely an interest because PSPC, obviously, is offering this alternative platform from a traditional IPO,” IPO leader Max Loh told CNBC. Asean scholarship at EY, end of February.

PSPCs are shell companies created to raise funds through an Initial Public Offering (IPO), with the sole purpose of merging or acquiring an existing private company and making it public.

This process generally takes two years. If the acquisitions are not completed within this time frame, the funds are returned to the investors.

PSPCs are sometimes referred to as “blank check companies” because investors do not know in advance which private company will be acquired with the funds.

To be clear, PSPCs aren’t new – they’ve been around since the 1990s.

Some of the recent interest can be attributed to a low interest rate environment which has resulted in a lot of liquidity, Loh said, adding that PSPC presents an “attractive proposition”.

Private companies see PSPCs as an alternative way to access the capital market, instead of the traditional IPO route, which may take longer and involve more scrutiny.

A growing number of sponsors based in Asia are supporting PSPCs.

Asia is also an acquisition target region for many PSPCs, especially for highly regarded Southeast Asian companies that are ready to go public. Cycling giant Grab is said to be in talks to go public by merging with a SPAC, Reuters said.

Data shared by analytics provider Dealogic showed the number of Asia-focused PSPC companies increased from 0 in 2016 to 8 last year, raising around $ 1.44 billion. . But only four PSPCs targeted at Asia were successfully completed in 2020.

In the first three months of 2021, six of these companies have already raised $ 2.7 billion.

Chew Sutat, head of global sales and origination at Singaporean market operator SGX, told CNBC last week that PSPCs can provide a relatively easy way for companies to raise funds under volatile conditions.

“With the right framework that balances and aligns the interests of investors, companies and sponsors, it could catalyze and strengthen SGX’s role in helping regional companies to grow and access global investors through capital market platforms. from Singapore, ”Chew said via email.

The explosive growth of PSPCs has been primarily focused on the United States, where it took only three months for the market to surpass its 2020 record. The funds raised by US PSPCs so far this year have totaled over $ 87 billion, compared to $ 83.4 billion in issuance in all of last year.

This trend is expected to continue where PSPC listings in the United States overtake traditional IPOs, according to Romaine Jackson, Southeast Asia manager at Dealogic.

“The first PSPCs in Asia will be a test of investor appetite, the market needs to understand whether investors would be comfortable investing without the same level of issuer access and control,” he said. he reported by email last month.

Currently, very few Asian markets allow PSPCs to list on local stock exchanges, and Asian-based sponsors primarily go to the United States.

Financial centers like Singapore and Hong Kong are exploring ways to list PSPCs, but there is no concrete indication of when blank check companies would be allowed to list on their exchanges.

According to Bruce Pang, head of macro and strategic research at China Renaissance Securities, Asian companies and investors are looking to ride the SPAC wave regardless of which exchange emerges as a SPAC hub in the East.

“Asian trade with the domestic market effect has the advantage of providing a playing field with a better understanding of business models and rationale for sectors of the new local economy, as businesses thrive and entrepreneurs thrive in Asia, ”he told CNBC.

According to EY’s Loh, having the right rules and methods for running SPAC listings would be essential for Asian exchanges.

When a PSPC raises funds, people who buy an IPO don’t know who the eventual target company of the acquisition will be. Instead, many investors rely on the successful track record of PSPC sponsors to invest in blank check companies.

One of the concerns for investors is whether there will be the same level of scrutiny and due diligence on target companies as in traditional IPOs, Loh said. Having proper rules and regulations can alleviate that worry, he said.

Loh explained that there is not “too much of a difference” between companies that go through IPOs and those that go through PSPCs, adding that it is the quality of the underlying company that account.

Pang of China Renaissance explained that regulatory uncertainties remain one of the main concerns in adopting PSPCs in Asia, as authorities and exchanges need to provide popular and practical means of regulation.

“Given the cautious stance of Asian stock exchanges and the tightening of reviews on shell companies, backdoor listing, reverse takeover or reverse merger, all of which are similar vehicles to PSPCs that can also allow companies to to bypass IPO review and regulatory oversight, exchanges will adopt PSPCs anytime soon, ”he said.

Pang also expects Hong Kong to be better positioned than Singapore as a PSPC Asia-Pacific hub due to its “diverse and liquid IPO market” which is on par with New York and London.

Loh added that PSPCs will provide another alternative platform for raising capital, aside from traditional IPOs as well as venture capital and private equity funds.

“Being a major hub for PSPC makes sense for Singapore because we are a financial center. The key is the rules, the execution and the quality of the businesses,” he said.