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As Asian SPAC markets develop a life of their own, Citi is in a prime position to continue supporting both the capital raising and de-SPAC stages. Edward Russell-Walling reports.

After a strong start to 2021, the overcrowded US market for special purpose acquisition company (SPAC) initial public offerings (IPOs) has fallen from grace — at least for now. But that has not stopped Asian financial markets gearing up to attract their own listings of so-called ‘blank cheque’ vehicles. Citi’s Hong Kong-based equity team hopes to continue its already busy record with Asia-Pacific SPACs and their associated de-SPAC transactions (where a SPAC acquires a company, taking it public in the process).

“Asia is better suited to this product, because of its huge number of new economy ‘unicorns’ and emerging businesses,” insists Udhay Furtado, Citi’s co-head of Asia-Pacific equity capital markets (ECM), referring to companies valued at more than $1bn. “SPACs offer them a strong alternative to getting listed.”

In 2020, there were eight SPAC IPOs with Asia-Pacific sponsors, worth a total $2.2bn, according to Rob Chan, Citi’s head of Asia-Pacific equity-linked origination. Last year, that grew to 28 deals worth $7.3bn. Citi was mandated on 11 of them, of which three have already announced de-SPAC mergers with target businesses.

Until very recently, Asia had no regulatory framework for SPACs, so last year’s transactions all took place in US markets, which tend to award the highest valuations for most of the sectors being targeted. This year has already seen SPACs from Singapore, which will soon be joined by Hong Kong, as the market undergoes the push–pull effects of new Asian SPAC-friendly rules and bilateral discouragement for Chinese listings in the US.

“Listing a Chinese company in the US is now a challenge,” Mr Chan observes, noting that a SPAC listed in Hong Kong would have no problems in targeting a Chinese business.

A good year

The Citi team kicked off 2021 with the $345m Nasdaq IPO of Poema Global Holdings, which it led alongside UBS. The upsized deal was sponsored by Princeville Capital, the vehicle of two former Deutsche Bank technology, media and telecoms bankers, with a former chief investment officer of Morgan Stanley Private Equity Asia as Poema’s CEO. It was five times oversubscribed.

Poema’s focus was on “high-growth internet and enterprise software companies, particularly in Europe and Asia”, and it duly found a target in Taiwan. This was Gogoro, which provides a battery-swapping and refuelling platform for electric two-wheelers.

Citi was lead placement agent in an enabling $250m private investment in public equity (PIPE) transaction, funded by strategic partners including Gogoro’s founding investor, Taiwan’s National Development Fund and Singapore’s Temasek wealth fund. This was the first-ever Taiwanese company de-SPAC and PIPE, and gave the business an implied value of some $2.5bn.

“One important thing for us is being selective about who we back,” Mr Furtado says, adding that the team likes to be involved from end to end. “We don’t underwrite the idea and then disappear. We want to get the back-end deal done too.”

Another 2021 Citi deal that has already entered de-SPAC territory is Bridgetown 2. Its backers were Richard Li’s Hong Kong vehicle, Pacific Century, and Thiel Capital, owned by PayPal co-founder Peter Thiel.

Bridgetown 2 was listed on Nasdaq in a $299m IPO, promising to invest in technology, media or financial services companies based in south and south-east Asia. Its IPO was a zero-warrant deal, which is in itself very unusual as SPAC investors typically purchase units comprising both shares and warrants (or fractions thereof). But, even more unusual, it was the first zero-warrant SPAC IPO in history where the sponsor provided risk capital — the costs of underwriting and legal expenses, etc — via purchasing warrants. In essence, investors were willing to invest in a transaction where they did not receive any warrants while the sponsor did — a clear indication of the strength of market demand for the deal. The pulling power of the sponsors was reflected in an oversubscription of some 19 times.

Within a few months, Bridgetown 2 was able to announce a merger with PropertyGuru. Describing itself as south-east Asia’s leading property-tech innovator, PropertyGuru provides an online property marketplace in Singapore, Thailand, Malaysia, Vietnam and Indonesia. Citi was co-placement agent on a $100m PIPE in a de-SPAC that gave the business a pro forma equity value of nearly $1.8bn.

Japanese conglomerate SoftBank Investment Advisers is sponsor and manager of a SPAC hat-trick, SVF Investment 1, 2 and 3. In their Nasdaq IPOs, each with Citi as a lead bookrunner, vehicle 1 raised $525m, while 2 and 3, listed concurrently, raised $480m between them. All were set up to seek high-growth technology opportunities.

One of the key reasons why investors are buying into Asia is that there is less competition here

Rob Chan

SVF Investment iterations 1 and 2 are still looking, but 3 has announced a merger with Symbotic, a US artificial intelligence-enabled technology platform for grocery and wholesale supply chains. Its clients include Walmart, which is investing in the deal.

Among last year’s Citi-led New York Stock Exchange (NYSE) listings was Black Spade Acquisition Company, sponsored by the private investment arm of Macau gambling heir Lawrence Ho. The company raised $169m, intending to seek a target in the global entertainment industry. In a concentrated book, with 45% of the final allocation held by the top 10 investors, demand was split between Asia (60%) and the US (40%).

“In the US, in addition to tech, many SPACs are focused on energy transition and healthcare,” Mr Furtado points out. “In Asia, the complexion is more tech-heavy, including fintech. Here, healthcare is more the preserve of vibrant local markets, and energy transition is in its relative infancy.”

Ken Chow, Citi’s co-head of Asia-Pacific ECM, believes that environmental, social and governance businesses will attract more Asian SPACs in future. “China is making a big push to be carbon neutral by 2060, and they are serious about it,” Mr Chow says. “So we will see a lot of investment in areas like renewables, electric vehicles, hydrogen, energy storage and savings solutions and new materials.”

That said, the Chinese regulator is very protective of retail investors and averse to new types of products, so SPACs are unlikely to debut on mainland exchanges any time soon. “Even the real estate investment trust product, which has been in overseas markets for decades, was only introduced in China last June,” Mr Chow says.

Singapore attraction

In September 2021, the Singapore Stock Exchange published its final rules for the listing of SPACs. They included a minimum market cap of S$150m ($111.6m) and a maximum timeline for a de-SPAC merger of 24 months.

Singapore’s initial SPAC listings took place this January. The first with international backers was Pegasus Asia, which raised S$170m. Its sponsors include Tikehau Capital and Financiere Agache, the vehicle of LVMH chairman Bernard Arnault. It will look for a tech-enabled target, possibly in fintech, consumer, real estate, health or digital services. Citi co-led the offering, which was nearly eight-times oversubscribed.

Hong Kong’s new rules for listing SPACs came into effect on January 1. They restrict trading in SPAC shares to professional investors, though retail investors may buy shares after a de-SPAC. IPOs must raise at least HK$1bn ($128.2m), and there are restrictions on who may be a SPAC promoter and on which target companies are permissible.

“The Singapore rules are quite consistent with the US rules,” observes Mr Chan. “The Hong Kong rules are stricter. Pre-revenue companies are not allowed as targets, for example. The exchange wants to ensure that it’s a real deal to protect the retail investors who can buy in at that stage.”

Hong Kong also requires a mandatory PIPE capital raise, so that PIPE investors can validate the valuation of the merger. There will be interest in Hong Kong from quality promoters, Mr Chan believes, though deal numbers will not approach US levels. Chinese companies looking to merge with a SPAC will be want it to be listed in Hong Kong rather than Singapore, he predicts.  

The Asian SPAC market is being affected by both positive and negative factors. One obvious positive is that Asia is not the US. “Globally, there are more than 560 SPACs still searching for a target,” Mr Chan says. “One of the key reasons why investors are buying into Asia is that there is less competition here.”

Right now, however, the market remains volatile and momentum-driven. Nasdaq’s December 2021 debut of the world’s biggest-ever SPAC did not help. After its $40bn merger with Altimeter Growth Corp, a SPAC, shares in Grab, a Singapore-based delivery, ride-hailing and financial services company, plunged by more than 30% on day one of trading. Citi was a bookrunner on the Altimeter IPO.

Mr Chan thinks that this year’s IPOs of Asian-sponsored SPACs in all markets combined will struggle to exceed last year’s $7.3bn volume.

“There will be Asian sponsor teams in the US market,” Mr Chow says. “But their areas of focus will very clearly be non-Chinese until the rules change for Chinese companies listing in the US.”

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