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New Singapore Registration Rules for SPACs | Dechert srl

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Background: SAVS are shell companies formed to raise capital within the framework of an IPO for the sole purpose of using the proceeds to acquire one or more operating companies. SPACs are typically established and initially funded by experienced founding shareholders, often referred to as sponsors, who then use their expertise and track record to acquire attractive private companies, providing those private companies with a faster alternative route to listing. The majority of IPO funds raised are generally placed in an escrow account and reserved primarily for completing a business combination through a merger, a share swap, an asset acquisition or other methods of business combination. After its IPO, a SPAC typically has 18 to 24 months to complete the business combination, and if it does not do so, it will be liquidated and all escrow funds will be returned to investors (public and non-public) in accordance with with the relevant Escrow Agreement.

introduction

The Singapore Stock Exchange (“SGX”) Recently finalized its listing rules for ad hoc acquisition companies (“After-sales service”) On the SGX motherboard. Sponsors considering PSPC listing may now consider listing in Singapore, as previous SGX listing rules prevented PSPCs from listing on SGX. While PSPC is not new to Asia (the first PSPC listing on the Korea Stock Exchange was in 2010), SGX’s review of its listing rules is the latest initiative by stock exchanges in the Asia-Pacific region to compete in the global SPAC quotes market. The implementation of SGX’s comprehensive regime for SPAC listings is expected to attract and promote investment opportunities in Singapore.

In recent years, SPACs have become an important force in global financial markets. In the fourth quarter of 2020, SPAC listings represented 30% of the global initial public offering (“Initial Public Offering“) continues. Market watchers predict that SPACs will remain an important source of stock market growth in the years to come. Indeed, 2021 has already seen a total of 424 IPOs of PSPC in the United States, demonstrating that the SPAC concept still has momentum in the market, and that investors retain their appetite to invest in attractive private companies.

However, interest in PSPC listings could decline in the US, in part due to increased scrutiny from government regulators – only 76 IPOs of PSPC took place in Q2 2021 compared to 310 IPOs of SPAC in the first quarter. This slowdown in the US PSPC market provides an opportunity for Asian stock exchanges, which to date have remained largely untapped markets for PSPCs. With Singapore now serving as an example, other exchanges in comparable jurisdictions, such as Hong Kong and Indonesia, will likely follow with their own listing rules for PSPCs.

Singapore’s new SEO framework

On September 2, 2021, the SGX released its updated motherboard rules as part of the proposed SAVS SEO (response to comments on the consultation document) (the “Consultation document”) As well as a practice note to provide issuers with additional guidance on SGX requirements for after-sales service. The consultation document was the result of several months of consultation and feedback from various industry players, including banks, law firms, auditors and venture capital funds.

SPAC registration requirements

The updated motherboard rules require that PSPC transmitters have, among other requirements, the following key attributes:

a. Market capitalization: a market capitalization of at least US $ 150 million, based on the issue price and share capital issued post-invitation;

b. Shareholding conditions:

(i) at least 25% of the total number of issued shares will be held by at least 300 public shareholders at the time of the IPO;

(ii) SPACs cannot adopt a dual class share structure at the time of registration; and

(iii) the sponsors must hold a minimum capital of between 2.5% and 3.5% at the time of registration, but cannot hold, in total, more than 20% of the participations in the total issued share capital of the After-sales service;

vs. Moratorium / blocking period: sponsors, management team, controlling shareholders and pre-IPO investors and their respective partners are subject to a moratorium / blocking period on their direct and indirect holdings between the listing and the closing of the business combination PSPC;

D. Share price and trading restrictions:

(i) the listed issue price must be at least USD 5 per unit;

(ii) SPAC units may consist of one share and one warrant (or other convertible securities), and any warrants (or other convertible securities) issued with one SPAC unit may be detached from that unit of the SPAC. and negotiated separately;

(iii) any warrants (or other convertible securities) traded separately on the SGX must not (i) be priced below the price of the SPAC unit, or (ii) be exercisable before the completion of the business combination. PSPC companies;

e. Escrow provisions:

(i) at least 90% of the gross proceeds of the IPO must be held by an independent escrow agent pending the business combination;

(ii) interest or income generated by escrow funds may be withdrawn for business combination or liquidation purposes;

(iii) the Escrow Agreement must, among other requirements:

  • be governed by the law of Singapore;
  • require the escrow agent to disclose any confidential or other information to SGX upon request;
  • require the escrow agent to take appropriate measures to ensure the proper custody, custody and control of funds held in escrow;
  • demand the return of the escrow fund to the shareholders on a pro rata basis upon the liquidation of the SPAC or when these shareholders vote against the proposed business combination; and
  • include a three month notice period for the escrow agent and PSPC to notify SGX of the termination of the escrow agreement;

F. Dilution limit: the maximum dilution percentage for shareholders resulting from the conversion of the warrants issued during the IPO is capped at 50% of the post-invitation share capital of SPAC (promotion included); and

g. Promote: the scope of the global participations in the SAVS allocated as remuneration to the sponsors, to the management team and to their associates for a nominal consideration or without consideration is generally authorized up to 20% of the issued share capital of the SAVS on a fully diluted basis immediately after the closing of the IPO, but SGX retains its discretion in determining whether such an award is appropriate.

SGX List Analysis

In addition to establishing the basic requirements for an SGX registered SPAC, the consultation document also described the elements that SGX will consider in its registration analysis. In determining whether a SPAC is suitable for listing, SGX has the discretion to take into account any factor 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 terms of the participation of the sponsors and the management team in the securities of the issuer, including the interests acquired by the sponsors, the management team and their associates for nominal consideration or without consideration before or during the initial public offering; and

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

Post-registration requirements

The updated listing rules also set out the time limits and requirements for SPACs listed on SGX. Once listed, an SPAC will have 24 months from the date of registration to enter into a legally binding agreement for a business combination and will have up to 12 additional months from this agreement to complete the business combination. The entire process is subject to an overall maximum period of 36 months from the date of registration. Any further extension may be authorized in limited circumstances upon request to SGX and with the approval of the independent shareholders of the SAVS.

The business combination must also have a fair market value of at least 80% of the amount in the escrow account when executing the binding transaction. Amounts held in the escrow account, representing deferred subscription commissions or other debts on any income generated by that account, are excluded.

A detailed list of changes to the SGX motherboard rules can be found in appendices 2 and 3 of the consultation document here.

The implementation of SGX’s comprehensive regime for SPAC listings is expected to attract and promote investment opportunities in Singapore, while other Asian financial centers are rushing to introduce their own PSPC regimes. During 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 expressly allow SPAC listings. Until the applicable registration rules are introduced or adapted, SPACs will not be able to register in Hong Kong or Indonesia.

Hong Kong PSPC Listing Rules Consultation

In March 2021, the Hong Kong Securities and Futures Commission and the Hong Kong Stock Exchange (“HKEx”) Began to explore the possibility of a SPAC listing framework in Hong Kong to further enhance the city’s competitiveness as an international financial center while protecting the interests of investors. As of the date of this article, HKEx continues to study the feasibility of a PSPC framework and has announced that it plans to launch a consultation on changes to its enrollment rules to allow PSPC enrollments in the third quarter of 2021. Such consultation will likely be done through the posting of a consultation document on HKEx’s website, on which interested market participants will be invited to provide comments to HKEx within a specified time frame.

Some Hong Kong market participants have speculated that it might be difficult to reconcile the new permissive SPAC regime with the city’s regulatory stance against backdoor listings in recent years. This inherent tension may explain HKEx’s delay in initiating its consultation. Nonetheless, observers expect HKEx to release a draft Hong Kong SPAC listing regime soon for market consultation given the announced timeline.

Sources

1/ https://Google.com/

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

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