Special Purpose Acquisition Companies (SPACs)

At a GlanceSpecial Purpose Acquisition Companies (SPACs) is a new listing vehicle as a viable alternative to traditional IPOs for fund raising in the Singapore market. SPACs are formed to raise capital through IPOs for the sole purpose of acquiring operating business(es) or asset(s) (i.e. business combination). Such acquisitions may be in the form of a merger, share exchange or other similar business combination methods.SPACs are listed investment vehicles with no prior operating history and revenue-generating business/asset at IPO. Units comprising of stocks and warrants are offered to investors during the SPAC IPO. After the SPAC has completed the business combination, its shares are listed on the exchange for trading.

SPAC Sponsor

A SPAC is established and initially financed by experienced and reputable founding shareholders. Sponsors may include but are not limited to private equity or venture capital firms and asset managers with expertise and track record in identifying acquisition targets for shareholders.

Escrow Account

SPACs are required to place at least 90% of the IPO proceeds in an escrow account which are held by a third party (i.e. an independent escrow agent or financial institution licensed and approved by MAS) Funds can only be drawn down in the event of a business combination, SPAC liquidation or other specific circumstances.

Difference between SPACs and traditional IPOs

Unlike traditional IPOs, SPAC listings have a shorter time to market due to the absence of business fundamental operations and financials at IPO. SPACs have no historical financial results to disclose, assets description, and minimal business-related risks at IPO.

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What are SPACs

SPACs are an alternative capital fundraising through an IPO to primarily acquire a target operating company. These acquisitions can be in the form of a merger, share exchange or other similar business combination methods.

Once a SPAC has announced a proposal to acquire or merge with an operating private company, shareholders can decide to continue with their investment in the combined entity or choose to redeem their investment. Shareholders are also given the right to vote for the proposed business combination. IPO proceeds from the escrow account will be used to finance the acquisition if the proposal is voted in favour by the shareholders. Investors can trade in the different stages of the SPAC life cycle.

Please visit the SGX website to find out more about SPACs

Risks: This product introduction does not form part of any offer or recommendation, or have any regard to the investment objectives, financial situation or needs of any specific person. Before committing to an investment, please seek advice from a financial or other professional adviser regarding the suitability of the product for you and read the relevant product offer documents, including the risk disclosures, which can be obtained from DBS Vickers. If you do not wish to seek financial advice, please consider carefully whether the product is suitable for you.

Investing in CBBCs involves risks, including but not limited to economic, market, and liquidity risks. CBBCs are leveraged derivative instruments and gains and losses are magnified. CBBCs have limited life spans and the value will decay over time. Investors are also exposed to counterparty risks like credit and default risks of the CBBC issuer. To manage the risks, investors should keep abreast of economic and corporate developments and seek to understand the workings of such instrument and financial markets in general. To find out more, please contact our Investment Specialists.

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