SPACs face new test: A wave of Asia-focused deals4 min read . Updated: 22 Feb 2021, 01:45 PM IST
- Tycoons in the region put money into U.S. blank-check companies as major local stock exchanges haven’t allowed such listings
Thousands of miles from Wall Street, the boom in blank-check companies is taking hold in a region where major stock exchanges don’t let firms raise money for unspecified uses.
In mainland China, Hong Kong and Singapore, investment firms controlled by tycoons and money managers have collectively raised billions of dollars on the New York Stock Exchange and Nasdaq Stock Market over the past year via special-purpose acquisition vehicles, showing how far-reaching the SPAC boom has been.
The vehicles are publicly listed shell companies with ready pools of cash to invest in—and merge with—private businesses. They have been touted by investment bankers as an easier way for startups to go public. If a SPAC fails to find a merger target by a deadline, typically two years, investors could take their money back.
As of Feb. 18, eight SPACs sponsored by companies in Asia raised a total of $2.3 billion this year, according to Dealogic data. The sum is small relative to what has been raised by American companies, but it already surpassed the total raised from SPACs in the region for all of 2020. Bankers say more issuances are likely, including from private-equity groups.
“This is a compelling pocket of capital that all the large private-equity and venture firms in Asia will be considering," said Udhay Furtado, co-head of Asia equity capital markets at Citigroup Inc.
Recent deals have included the $360 million NYSE listing of Primavera Capital Acquisition Corp., backed by a private-equity firm founded by Fred Hu, a former chairman of Goldman Sachs Group Inc.’s Greater China business. Other backers of blank-check vehicles include Hong Kong billionaire Richard Li, who is a son of tycoon Li Ka-shing, and Chinese rainmaker Fang Fenglei.
They have all flocked to the U.S.—where investors are plowing money into blank-check firms—because larger exchanges in Asia haven’t allowed such companies to list. The Singapore Exchange is considering a public consultation to allow SPAC listings after previously examining the issue in 2010.
The exuberance has sparked debates among private-equity investors and investment bankers about whether the trend will continue and whether there will be enough suitable targets to be merged with if the pace of fundraising continues. Most Asia-sponsored SPACs are aiming to merge with regional businesses or multinationals that plan to grow in the region.
“People are noticing and watching," said Raghav Maliah, co-head of M&A in Asia, excluding Japan, at Goldman Sachs. He said the test will be whether the companies can successfully “de-SPAC," a term used to describe their eventual acquisitions of operating businesses.
“If so, then as with everything, success begets success. If not, that could be a setback for the overall asset class," Mr. Maliah added.
So far, Asian companies that went public via SPACs in the U.S. have largely underwhelmed investors. One of the largest such mergers was the $1.4 billion listing of United Family Healthcare. A high-end private hospital chain in China, the company went public on the NYSE in December 2019 via a SPAC issued by New Frontier Group, an investment firm led by former Hong Kong financial secretary Antony Leung.
For more than a year, shares of New Frontier Health, the merged entity, traded below the $10-per-share price that they were originally sold at, a sign the deal hadn’t been well received by investors. Last week, the company said a consortium led by Mr. Leung planned to take it private, sending the stock price above $11.
David Zeng, managing director of New Frontier Group, said that the firm “strives to create value [for] the investors/shareholders" and the proposed buyout would provide a 32.5% return for those who invested in the original blank-check IPO.
When targeting Asia-based companies, SPACs face additional challenges. “One of the biggest obstacles is overcoming U.S. investors’ concerns about the impact of geopolitical tensions on issues such as trade and technology transfer," said David Shen, managing director of Olympus Capital Asia, which in January raised $130 million to invest in American companies that intend to expand in the region.
The rapid growth of SPACs has also raised concerns, among even those who believe in the value of these vehicles as a source of capital and investment, about overpriced deals or a lack of suitable targets.
“There’s a little bit of fear [about SPACs] because this is too new for some people and has grown too fast," said Joaquin Rodriguez Torres, Hong Kong-based managing partner at private-equity firm Princeville Capital, which raised $300 million last month on the Nasdaq and is targeting technology businesses in Europe and Asia.
Benjamin Kwasnick, founder of SPAC Research, said there were 335 SPACs listed in the US. He said they had collectively raised more than $100 billion, which was parked in so-called trust accounts.
“SPACs typically look for companies at least three to five times the amount of cash in their trust account, so that could mean at least $300 billion-$500 billion worth of enterprise value taken public from the current crop of SPACs," he said.
In Asia, Goldman’s Mr. Maliah estimates roughly 400 to 500 companies are looking to list in the next two to three years. Some startups could opt for a SPAC merger as a way to go public more quickly.
This story has been published from a wire agency feed without modifications to the text.