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Practice Note 6.4 Requirements for Special Purpose Acquisition Companies

Details Cross Reference
Issue date: 2 September 2021

Effective date: 3 September 2021
Listing Rule 210(11)(a)

Listing Rules 210(11)(i)(i) and (v)

Listing Rule 626

Listing Rule 754(3)
1. Introduction
This Practice Note sets out guidance on the requirements for SPACs. Issuers should apply the principles outlined in the Practice Note flexibly and sensibly.
2. Guidance on Suitability Assessment Factors of a SPAC
2.1 The Exchange may, in its discretion, take into account any factor it considers relevant in assessing the suitability of a SPAC for listing. In exercising its discretion, the Exchange will consider factors including, but not limited to, the following:
(a) the profile including the track record and repute of the founding shareholders and experience and expertise of the management team of the issuer;
(b) the business objective and strategy of the issuer;
(c) the nature and extent of the management team’s compensation;
(d) the extent and manner of the founding shareholders and the management team’s securities participation in the issuer, including equity interests acquired by the founding shareholders, management team and their associates at nominal or no consideration prior to or at the IPO;
(e) the alignment of interests of the founding shareholders and the management team with the interest of other shareholders;
(f) the proportion of rewards to be enjoyed by the founding shareholders, the management team, and their associates;
(g) the amount of time permitted for completion of the business combination prior to the liquidation distribution;
(h) the dilutive features and events of the issuer, including those which may impact shareholders and whether there are any mitigants for such dilution;
(i) the percentage of amount held in the escrow account that must be represented by the fair market value of the business combination;
(j) the provisions in the Articles of Association and other constituent documents of the issuer (including comparability of shareholder protection and the liquidation rights with that of Singapore-incorporated companies, and whether the issuer will be subject to the Insolvency, Restructuring and Dissolution Act of Singapore ("IRDA") for liquidation procedures or the incorporation of such equivalent provisions of the IRDA);
(k) the intended use of IPO proceeds not placed in the escrow account;
(l) the escrow arrangements governing the funds in the escrow account; and
(m) such other factors as the Exchange believes are consistent with the goals of investor protection and the public interest.
2.2 The management team should have the appropriate experience and track record and demonstrate that it will be capable of identifying and evaluating acquisition targets and completing the business combination sustainably based on the business objective and strategy disclosed in the prospectus. The issue manager must demonstrate that the management team has the requisite collective experience and track record, which include having:
(a) sufficient and relevant technical and commercial experience and expertise;
(b) positive track record in relevant industry and business activities including (i) specific contribution to business growth and performance; (ii) ability to manage relevant business operations risks; and (iii) ability to identify and develop acquisition opportunities; and
(c) positive corporate governance and regulatory compliance history.
2.3 In demonstrating the suitability of a SPAC for listing, the issue manager must consider the SPAC proposal holistically and take into consideration factors including those set out in paragraphs 2.1 and 2.2 above.
3. Additional Requirements for Escrow Agreement
3.1 The escrow agreement provisions should include the following:
(a) the governing law is Singapore law;
(b) the obligation by the escrow agent to disclose any confidential or other information to the Exchange upon request;
(c) the obligation by the escrow agent to take appropriate measures to ensure proper safekeeping, custody and control of the funds held in the escrow account, including that proper accounting records and other related records as necessary are retained in relation to the escrow account; and
(d) where the escrow agent resigns or ceases to act for the issuer prior to the liquidation of the escrow account, the escrow agent is required to give three months’ notice in writing to the Exchange if it wishes to resign, stating its reasons for resignation. The issuer is similarly required to give three months’ notice in writing to the Exchange if it wishes to terminate the escrow agent’s appointment, stating its reasons for termination. Any resignation or termination arrangement shall be carried out in compliance with Rule 210(11)(i)(iii).
4. Contents of Quarterly Updates via SGXNET
4.1 The SGXNET announcement update required under Rule 754(3) must include the following information:
(a) general description of the issuer’s operating expenses and the total amounts spent;
(b) detailed description, analysis and discussion on the top 5 highest amount of operating expenses;
(c) a statement by the directors of the issuer on whether there is any circumstance that has affected or will affect the business and financial position of the issuer;
(d) commentary from the directors of the issuer on the direction of the business combination, including any change to the objective, strategy, status and capital of the issuer;
(e) in relation to the funds placed in the escrow account, the composition of the permitted investments, the issuer’s investment strategy, market and credit risks for such investments; and
(f) brief explanation of the status of (i) utilisation of proceeds from IPO, compared with the disclosure of the intended use of proceeds in the prospectus, segregated between those placed in the escrow account from those which are not, including explanation for any material deviation in the use of proceeds; and (ii) utilisation of any interests and income derived from the amounts placed in the escrow account.
5. Event of Material Change prior to Business Combination
5.1 Examples of circumstances that may constitute an event of material change as described in Rule 210(11)(n)(i) includes:-
(a) a change in control of the founding shareholders; and
(b) resignation and/or replacement of key members of the management team (which are not due to natural cessation events).

The circumstances above are not intended to be exhaustive. In the event of any uncertainty, the issuer should consult and clarify with the Exchange as soon as possible. The Exchange retains discretion to determine a circumstance an event of material change.
6. Circumstances for Escrow Funds Draw Down
6.1 The issuer may draw down the amount placed in the escrow account prior to completion of a business combination in the following circumstances:
(a) upon election by a shareholder to have its shares redeemed by the issuer at the time of business combination vote and if the business combination is approved and completed within the permitted time frame;
(b) upon a liquidation of the issuer;
(c) solely in respect of the interest earned and income derived from the amount placed in the escrow account, such interest and income is permitted for draw down by the issuer as payment for administrative expenses incurred by the issuer in connection with the IPO, general working capital expenses and related expenses for the purposes of identifying and completing a business combination; and
(d) upon such other exceptional circumstances apart from those stipulated in (a) to (c).

The issuer must obtain (i) the Exchange’s approval; and (ii) at least 75% of the votes cast by shareholders at a general meeting to be convened, for a draw down on the amount held in escrow account for the purposes of (d). For the purpose of voting on a draw down under (d), the founding shareholders, the management team, and their associates, are not permitted to vote with shares acquired at nominal or no consideration prior to or at the IPO of the issuer.
7. Additional Disclosure Requirements for Shareholders’ Circular for the Business Combination
7.1
(a) Aggregate fair market value of the business combination in monetary terms and as a percentage of the amount held in the escrow account, net of any taxes payable (including basis of such value);
(b) The details of how the target business(es) or asset(s) was identified, evaluated and decided for business combination;
(c) A statement on whether the selection criteria or factors of the business combination are in line with those disclosed in the prospectus and relevant commentary on any variations from such selection criteria or factors, if any;
(d) The status of the utilisation of proceeds raised from the IPO, compared with the disclosure of the intended use of proceeds in the prospectus, segregated between those placed in the escrow account from those which are not, including explanation for any material deviation in the use of proceeds;
(e) Information required in Rules 1015(5)(a) and (b);
(f) Valuation methodologies (if applicable) used in valuing the business combination, and explanation if such methodologies is not in line with that disclosed in the prospectus of the IPO;
(g) The limit as to the maximum number of shares with respect to which an independent shareholder, together with any associates or persons acting jointly or in concert, may exercise a redemption right (if applicable);
(h) Where an independent valuer is not appointed, statements from the financial adviser and the directors of the issuer on why obtaining an independent valuation on the business combination is not necessary and the basis for forming such views;
(i) A responsibility statement by the founding shareholders and the directors of the issuer, the proposed directors of the resulting issuer, and the financial adviser, in the form set out in Practice Note 12.1;
(j) The details of any additional financing including issuance of securities and credit facility entered into, including the salient terms and proposed utilisation of funds;
(k) Voting, redemption and liquidation rights of shareholders in relation to the business combination. This includes:
(i) basis of computation for pro rata entitlement in the event of a redemption of shares and liquidation of the issuer;
(ii) any threshold on the aggregate percentage of shares owned by shareholders who exercise their redemption rights beyond which the issuer will not proceed with the business combination, and the basis for the quantum set;
(iii) the process for those who elect to redeem their shares for cash and the timeframe for payment; and
(iv) the terms and procedures for the liquidation distribution upon failure to meet the permitted time frame to complete a business combination;
(l) Prominent disclosure on dilutive impact to shareholders arising from known dilutive features and events including (i) additional financing obtained for the business combination and new issuance of securities; (ii) the conversion of any warrants or other convertible securities issued by the issuer in connection with the IPO including the maximum percentage dilution limit established in accordance with Rule 210(11)(k) and the basis for the established limit; and (iii) the aggregate equity interests in the issuer acquired by the founding shareholders, management team, and their associates at nominal or no consideration;
(m) Pertinent terms of any side voting arrangement or agreement respectively entered into by the SPAC and/or founding shareholders with other shareholders including the impact of such arrangement or agreement to shareholders;
(n) Potential conflicts of interests between the issuer and the founding shareholders, the directors and the management team, and their associates (including measures to address potential conflicts of interests where the issuer pursues a business combination target in which the aforementioned persons or entity have an interest in);
(o) Potential conflicts of interests a financial adviser and underwriters may have in providing additional services to the issuer such as identifying potential business combination targets, including description of the additional services, fees and commissions, and whether any commissions were conditional and deferred;
(p) The details of any benefits and compensation received by the founding shareholders, the directors and the management team, and their associates arising from the completion of the business combination; and
(q) The details of the ownership interest in and continuing relationship of the founding shareholders, the directors and the management team, and their associates with the resulting issuer.

Added on 3 September 2021.