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SINGAPORE : Investors may soon have access to a new type of investment vehicle called SPACs, or Special Purpose Acquisition Companies.
A SPAC is usually a shell-company, which raises funds through an initial public offering to acquire or merge other companies.
This investment vehicle is pending approval from the Singapore Exchange (SGX).
Imagine handing over a blank cheque to a fund manager. That is one example of how SPACs will work, according to some market watchers.
A SPAC typically acquires or merges other companies. This is done with money from an initial public offering, but the catch is that investors usually do not know at the time of fund-raising which companies these will be.
So the only way to assess the risk of a SPAC is through the track record of its sponsors.
John Trehey, partner, Maples and Calder, said: "It is important for investors to see that sponsors behind the SPAC have been active in the mergers and acquisitions field and in the private equity field, that they have been successful in making deals happen."
The firm has advised a number of foreign SPACs, which have acquired mainly China-based companies in sectors such as manufacturing, retail and communications.
Interest in SPACs has been gaining in Singapore recently. Observers said there have been suggestions that such SPACs may be listed on the SGX. They also believe that developing Asian economies will boost the appeal for SPACs in Singapore.
Mr Trehey explained: "They appeal to investors because of the type of industries that take flight in this part of the world. With everything from manufacturing, technology and telecoms, these are the areas that SPACs look for in their business combinations."
The SGX recently consulted the public on its proposal for SPACs. It is currently studying the responses received. - CNA/ms
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