Long cotton shorts were a hit in America in the early 1990s. It was ideal for summer wear. The cotton fabric kept people cool. The deep pockets provided ample space for wallets, sunglasses and keys. Cell phones were much bigger in those days.
After a few years, long shorts spread to Singapore. People ditched sports shorts and silk pants. Both young and old adopted American fashion. Long shorts were ideal for Singapore’s sweltering heat and informal manner.
These days, fashion spreads even quicker. Special purpose acquisition companies (spacs) were a rage on the Nasdaq last year. In 2021 alone, more than US$120 billion ($162.15 billion) have been raised by spacs. That is more than the IPO proceeds for 2021.
Singapore has stolen a march over other financial centres by introducing them swiftly. Spacs are also known as blank cheque companies. They are listed shell corporations with the aim of acquiring a private company.
Vertex Technology Acquisition Corporation will mark Singapore’s spac debut on Jan 21. Vertex is backed by Temasek and is seeking $170 million. Vertex will zone in on cybersecurity, artificial intelligence and consumer internet.
Pegasus Asia is sponsoring another spac IPO for $150 million on Jan 25. Its backers include Jean-Pierre Mustier, the former CEO of Societe Generale (SocGen) and UniCredit, two giant European banks. Many other spac aspirants are clamouring to list in Singapore. Pegasus Asia will be looking for deals in consumer tech, FinTech and PropTech.
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The great virtue of the spac process is speed. A private company gets listed through a fast track process through spacs. It avoids the cumbersome route for an IPO.
Marquee tech IPOs do not favour small investors. For instance, venture capitalists cornered the lion share of the gains in Uber. Uber’s early backers like Menlo Park have made 10 times on their investment.
In a spac, ordinary investors get a piece of the pie. It is an excellent way for the common person to be exposed to high growth sectors. Spacs congregate in sectors such as tech, life sciences and electric vehicles.
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Spac units are issued in a spac IPO. A spac unit includes share and warrant. Once the spac has raised its proceeds in the IPO, it has two years to acquire a target. The target is injected into the spac. Further proceeds are raised in a “Pipe” (public investment in private equity) at this stage.
The great determinant of a spac’s success is the stature of the sponsors. The sponsors’ judgement is vital. They need to pick an appropriate target. The sponsors are rewarded with 20% of the economic interest of the merged entity.
The two spacs that are debuting in Singapore have distinguished pedigrees. Vertex has a respected backer in Temasek, which is one of the leading sovereign wealth funds in the world.
Mustier, the force behind Pegasus Asia, is a savvy investor. His execution ability is legendary. He helped drive total shareholder returns (TSR) of 15% at SocGen before the 2008 crisis. A scandal involving a rogue trader Jerome Kerviel led to his departure from SocGen in 2009. When he was entrusted with Unicredit, he helped outperform the Italian index until Covid hit.
Mustier is an alumnus of Ecole Polytechnique, the nursery of France’s elite. Like other members of that club, he was on the fast track at a tender age. He is fluent in numbers and rules by them. Subordinates are held to high standards of delivery.
The 60-year-old banker led SocGen Asia during the 1997 collapse of many Asian economies. He banned business class travel to cut costs. He was asked whether the business class ban would apply to directors. He replied that he had conducted a study. He had found that there was no difference between the backside of a director and that of a non-director!
The tech rout provides a gilded opportunity. The first fortnight of 2022 has seen bond yields rise to the highest level in the Covid era. Nasdaq is down 8% year to date. With the China tech rout last year, many emerging market tech names have been devastated. Grab Holdings lost 65% of its value in six weeks; Bukalapak.com has performed worse.
This means that the unlisted tech opportunities that the two spacs are seeking are cheaper. It is better to invest when the market is faltering, than when it is red hot. Like long shorts, spacs may have come to Singapore at the right time.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in these columns
