On September 2, 2021, Singapore Exchange (SGX) released the “Proposed Listing Framework for Special Purpose Acquisition Companies” that officially permits the public listing of SPACs on its mainboard. The move aims to cement Singapore’s status as Asia’s top financial center, attract lists of regional unicorn companies in the tech industry, and satisfy the appetite of local high net-worth investors for higher-risk investments. On September 17, the Singapore government launched a S$1.5 billion (US$1.1 billion) investment fund backed by Temasek Holdings, the city state’s investment firm, to boost its stock markets by injecting money in high-growth companies and initial public offerings.
It makes sense for Singapore to become Asia’s SPAC hub for multiple reasons. First, according to a recent survey by the Bank for International Settlements, the capital inflow to China and several emerging Asian nations has recovered faster than in the rest of the world after the outbreak of the COVID-19 pandemic, creating a demand for a local financing infrastructure that can handle innovative investments like SPACs. Second, Singapore is already a leading international financial center, and revising the Singapore bourse’s listing rules will strengthen that status. Asian unicorn companies (unlisted tech enterprises valued at over $1 billion) have been facing greater market uncertainty at the moment, so some would prefer an alternative listing venue to the U.S. Amidst the U.S.-China trade war, Chinese tech giants, including TikTok, have been relocating parts of their businesses to Singapore, to avoid the unpredictability of international operations and overseas listings. As for local tech titans in Singapore, like Grab and PropertyGuru, they have chosen to go public in the U.S. by merging with listed SPACs in New York, without a feasible listing option at home. Accordingly, accommodating the financing demand of Asia’s tech companies is another justification for Singapore to introduce SPAC listings. Last but not least, Singaporean investors, especially high-net-worth individuals and family offices, are calling for new asset classes such as SPACs to satisfy their increasing need for asset diversification and appreciation.
Singapore’s SPAC Listing Framework
The SGX SPAC listing framework consists mainly of two parts. The major one lies in the SGX Mainboard Rules, especially Rule 210 (11), which constructs the basic framework covering the whole lifecycle of Singapore SPACs, from the initial requirement about the minimum market capitalization of SPACs (Rule 210 (11)(b)), to the last stage of SPACs like the business combination (Rule 210(11)(m)), liquidation (Rule 210(11)(n)), and delisting (Rule 210(11)(o)). The additional regulations can be found in Rules 625, 626, and 754, which refer to a series of specific requirements and obligations for SPAC listings on the exchange. Detailed changes to the former listing rules include Rules 608 (Introductory Document), 883A (Share Buy-Back Approval), 1305,1308 (Delisting), and 1404 (Appeals Committee). Despite being a novel listing method, SPACs achieve similar functions as traditional IPOs, so both regimes are subject to the same securities regulations, in particular, those protecting the public. The Singapore SPAC listing rules cover five areas:
Admission Threshold and Liquidity Guarantee
Setting a proper size threshold for listing a SPAC facilitates the quality and strength of the business combination in the de-SPAC process, which also affects the liquidity of the investment and the willingness of public shareholders, especially retail shareholders, to participate. Accordingly, the Singapore Exchange set S$150 million as the minimum market capitalization for SPACs, with no fewer than 300 public shareholders holding at least 25% percent of issued shares, and with at least S$5 value per unit initially issued. It should be noted that 500 public shareholders are required after the business combination under the existing Mainboard listing Rule 210(1)(a).
Interests Binding and Moratorium
The Singapore Exchange prioritized investor protection in designing SPAC rules. In response to public comments that Singapore SPACs should be open only to accredited or institutional investors, the regulator compromised by requiring a close relationship between the sponsors’ interests and those of public shareholders, in order to avoid free-riding by issuers and excessive dilution of long-term investor interests. The sponsors and the management team must, in aggregate, subscribe to a minimum amount of equity securities, such as 3.5 percent, 3.0 percent, or 2.5 percent, depending on the varying standards of market capitalization under Rule 210(11)(e). There is also a cap of 20 percent of the issued on the SPAC sponsors that do not make an equity contribution equivalent to that of public shareholders. Finally, there is a moratorium of six months after consummation of the business combination.
Money Escrowed and Warrants
The issuer must place at least 90 percent of the gross funds raised from its IPO in an escrow account opened with and operated by an independent agent, which must be a financial institution licensed by the Monetary Authority of Singapore. The conversion of any warrants or other convertible securities shall be limited to 50 percent of the dilution cap under Rule 210(11)(k).
Voting Rights Arrangements
The rules address three fundamental issues relating to voting rights: voter eligibility, voting rights, and voting exit. As for voter eligibility, there is an issue over whether to allow sponsors to vote in the process of deciding the business combination, due to concerns about securities fraud and the independence of decisions on the target’s proposal. Regulators agreed to allow all shareholders, including founding sponsors, to vote on the business combination, but founding sponsors must waive their right to participate in the liquidation and distribution of all equity securities owned or acquired by them prior to or during the IPO. As for exercising voting rights, any resolution must gain at least 75 percent of votes cast by all shareholders or of independent shareholders (not including founding sponsors, management, or their associates). If the remaining 25 percent of shareholders oppose the proposal, they can force the company to redeem their shares.
At the end of a SPAC’s life, there are two exit strategies: combination or liquidation. SPACs are created to raise funds, go public, and acquire and merge with a target. In Singapore, the issuer must complete a merger approved by at least 75 percent of its shareholders, within 24 months from the date of the listing and not later than 36 months. Under Rule 754(3), the issuer must provide quarterly updates on how the SPAC uses cash. If the combined company triggers the delisting standards, the exchange will consider delisting the combined company in the best interests of the public. If less than 75 percent of shareholder approve the proposed merger, the deal is not completed within the permitted time frame, or the exchange orders delisting, the SPAC must liquidate.
Although the Singapore SPAC model is generally well-designed, before Singapore can become Asia’s top SPAC hub, regulators must decide how to ensure sufficient liquidity and trading volume for the shares of de-SPAC entities. Otherwise, global investors might not be willing to create SPACs in the territory, no matter how attractive the listing standards. As China accelerates the creation of its RMB onshore market (e.g. QFII) and offshore market (e.g. Hong Kong Bond Connect Scheme), Singapore is expected to encounter intense regional competition. Despite its sound legal system, market dynamism, and moderate regulation, Singapore has its work cut out for it.
 Singapore Exchange (SGX), “Proposed Listing Framework for Special Purpose Acquisition Companies (2 September 2021)”, available at https://api2.sgx.com/sites/default/files/2021-09/Response%20Paper%20on%20Proposed%20Listing%20Framework%20for%20Special%20Purpose%20Acquisition%20Companies.pdf, accessed 20 September 2021.
 Ishika Mookerjee and Ann Koh, “Singapore, Temasek Start $1.1 Billion Fund to Boost Market”, Bloomberg (17 September 2021), available at https://www.bloomberg.com/news/articles/2021-09-17/singapore-seeks-to-boost-local-stock-market-with-funding-effort, accessed 20 September 2021.
This post comes to us from Lerong Lu, a senior lecturer in law at The Dickson Poon School of Law at King’s College London, and Alice Lingsheng Zhang, a PhD candidate at the School of Law at Shanghai University of Finance and Economics. It is based on their recent article, “SPAC Listing Rules in Singapore: The Legal Framework, Rationale, and Comparative Advantages,” available here.