The explosion in SPAC listing volumes in US equity markets across calendar year 2020 has no doubt put global financial markets on notice. Asian market regulators are testing investor appetites, but recognise the opportunity to attract significant capital to the region from foreign investors. On the other hand, Australia’s regulatory landscape and current ASX listing rules are not conducive to the growth of these investment vehicles, which is underpinned by a lively IPO market.
Asian regulatory approval critical for global acceptance
Data from Dealogic indicates that SPAC listings have raised $2.7B across Asian markets in 2021, an increase of more than 500% from 2019 volumes. If wider regulatory approval is conferred in Asian markets, the pipeline for prospective SPAC listings will inevitably continue to grow.
Further, the region is also gaining traction as the destination of choice for sponsors to deploy funds raised by SPACs through their IPO. Just as 2020 was the year of the SPAC, 2021 may be the year of the de-SPAC, as many of these recently formed investment vehicles are looking to deploy capital raised before the 24-month deadline.
Among those exploring the Asia-based opportunities are Ken Hitchner, former head of Goldman Sachs in Asia Pacific; Richard Li, one of Hong Kong’s most eminent businessmen; Peter Thiel, founder of PayPal and Palantir Technologies; and SoftBank, the world’s largest technology-focused venture capital fund. These investors, and others, are seeking to capitalise on large volumes of foreign investment poured into the vibrant tech hub that is Southeast Asia.
This figure substantially trails the $87B raised by SPACs in the US market so far in 2021. This is likely underpinned by reservations of Asian regulators regarding transparency and shareholder protection.
Currently, various public exchange regulatory frameworks do not accommodate for the listing of these investment vehicles. The Stock Exchange of Hong Kong is not a viable destination for financial sponsors looking to launch a SPAC due to strict regulation of backdoor listings and cash shells. It is uncertain whether, amidst all the commotion, listing requirements will be alleviated. Given the host of sponsors queueing to access institutional investors through the Exchange, the opportunity to attract capital into the market provides a strong case for loosening market regulation of SPACs.
If SPACs are able to gain traction by reaching wider acceptance by regulators, especially in Asian markets, listing volumes are likely to continue their trend on global scale. Although it is unclear, certainly in the Australian market, whether they will indeed gain acceptance
Why Australia will not join the SPAC party
There are a number of key headwinds that prevent SPACs from being launched on the Australian Stock Exchange (ASX). A spokesperson from the ASX told The Regulatory Review that “from ASX’s perspective – we would not list a ‘cash box’ with no activities under our current rule framework”.
Similar to the Stock Exchange of Hong Kong, the ASX has been quite averse to financial engineering that emanates a backdoor listing. The cash box rule effectively ensures that the publicly-listed shell company maintains active operations. Listing requirements also require that 50% of collected capital must be committed or is expected to be committed soon after listing, otherwise, ASX will not grant a listing.
The overarching conclusion reached is that ASX does not believe SPACs are needed in Australian markets. Whilst US and global IPO markets have struggled since the dot-com bubble burst in 2000, the ASX has enjoyed vibrant, diversified growth in listings.
Across the second half of 2020, the surge in SPAC listings in the US drove a severe drop in IPOs. The Australian market experienced quite the contrary. The approximate proportions of number, market capitalisation and capital raised across the second half of 2020, were 85%, 97% and 99% of total yearly figures, respectively. The pipeline for ASX IPO candidates also remains high moving into 2021, reinforcing the argument that SPACs are a piece of financial engineering unnecessary in Australian markets.