Poor man’s private equity or private equity’s poor cousin? Blank-check companies, which will soon be arriving in Singapore, could easily fall in one or the other group, depending on the quality of their early sponsors.

Celebrities need not apply. Serena Williams or A-Rod won’t be luring Indonesian travel booking website Traveloka or Vietnamese gaming firm VNG Corp. to Singapore. And that’s the most important thing. Without exciting startups from Southeast and South Asia — those that might otherwise chase U.S. listings — the city-state will struggle to make a real asset class out of special purpose acquisition companies, or SPACs.

Rather than glamorous backers, the financial center will want a few blockbuster targets: young, fast-growing firms offering a slice of private-equity-type returns. If the first few deals turn out to be as dull as the rest of the city’s equity-raising market, interest in the jaded local investor community might drop fairly quickly.  

Singapore has seen just three initial public offerings this year, garnering less than $250 million. The 69 IPOs in rival Hong Kong have netted $35 billion. Clearly, Singapore Exchange Ltd. will want the new asset class to shake things up by repeating the magic of real estate investment trusts. By traded value, roughly a fifth of the shares changing hands in the city nowadays are REITs.

But with institutionalized landlordship, Singapore had a homegrown advantage: Real estate has been a time-tested ticket to wealth on the small, space-constrained island. In a low interest-rate environment, earnings from a steady stream of rents have trumped meager yields from bank deposits. And while Covid-19 lockdowns upended the economics of shopping mall REITs, they gave a boost to data centers, making their retail part-owners rich from playing hosts to bits and bytes.

SPACs, however, will have to appeal to a more risk-tolerant investor class than rent collectors.

According to SGX’s recently announced listing rules for SPACs, the blank-check company that sells stock to the public will have 24 months (extendable to 36) to find a private target to merge with and — as the jargon goes — “deSPAC.” Those who don’t like the target will be able exit by redeeming their shares. But what happens to the warrants that give them a right to buy the stock at a later date?

In a CFA Institute straw poll, 44% of respondents had expressed a preference for non-detachable warrants (those who choose to get off the bus don’t get a special re-boarding pass), while 31% wanted the so-called Pershing Square option: transfer a part of the leavers’ warrants to the “remain” camp to reward those who kept their faith. But having selected the option of detachable warrants, albeit with dilution restricted to 50%, it will be interesting to see how SGX deals with its first case of “SPAC-xit.” 

Singapore wants sponsors to have ample skin in the game to earn the “promote,” the maximum 20% of shares they can have for free at the time of IPO. But beyond rules and regulations, blank-check firms can take off in Singapore if Temasek Holdings Pte, the state investment firm, and GIC Pte, the sovereign wealth fund, bring them some juicy targets from their stables.

Take Grab Holdings Inc., the Southeast Asian ride-hailing and delivery firm that’s won a Singapore banking license. Seven years ago, when it was a fledgling startup, a $10 million check from Temasek’s venture capital unit persuaded Grab to move its headquarters to Singapore. Recently, Grab consummated its merger with Altimeter Growth Corp., a U.S.-listed SPAC, with the help of a $4 billion private investment in public equity, or PIPE, offering. Temasek participated in the PIPE, alongside other global investors.

Similarly, GIC has backed Bukalapak.com for years before its recent IPO, the biggest in Indonesia’s history. The online marketplace was earlier weighing a public listing via the SPAC route. GIC is also an investor in Vietnam’s VNG and tech unicorn VNLife, as well as in Jakarta-based Traveloka. A SPAC backed by billionaires Richard Li and Peter Thiel has agreed to take Singapore’s online real estate firm PropertyGuru Pte public in the U.S.

Anybody who buys, sells or rents an apartment in Singapore spends a lot of time on PropertyGuru, a fact most U.S. investors won’t know or care about. Home is probably the best place for regular price discovery in the online portal’s shares. At the same time, a country of 5.7 million people can’t produce enough local champions to sustain SPACs as an asset class. Sponsors will have to use their heft, creativity and connections and cast their nets wide in the region, and startups in bigger markets like Indonesia and India will have to take their bait.

Only then will Singapore’s blank-check vehicles become something like poor man’s private equity.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

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