Malaysian Spacs: Go hard or go home

Malaysia’s special purpose acquisition companies (Spacs) have gone from showing promise to dead in the water, with the first liquidation of one of the vehicles last week. It’s time for market participants to make up their minds about the asset class.

  • By John Loh
  • 01 Mar 2016
Email a colleague
Request a PDF

Five years since the first cash shell listing on Bursa Malaysia, the Spac market looks miserable. Last week, CLIQ Energy announced that it would be liquidated, after the regulator rejected its request for more time to make an acquisition. CLIQ listed three years ago and its liquidation will be the first for a Malaysian Spac.

Then, as if to drive the point home, Eco World International filed for a conventional listing the same week, after dropping plans last year for a Spac IPO which would have been the first from the property sector.

The news has put the spotlight on Spacs. They have no assets or operations at the time of listing, but are holding companies set up for acquisitions. Investing in a Spac is considered risky because of the absence of an operating history and performance track record, with investors largely relying on the credentials of those running the Spac.

Malaysia’s Securities Commission, the capital markets regulator, has already made moves to tighten regulations around the sector, for instance requiring promoters to have more skin in the game and raising the thresholds for acquisitions, in a bid to protect minority investors.

Despite that, there has always been some interest in the asset class, with companies mooting ideas for Spacs in industries as varied as food and beverage, oil palm plantations, property, mining and healthcare, on top of the first crop of Spacs, which were focused on oil and gas.

But the bubble has now burst. CLIQ’s liquidation announcement follows a slew of potential Spac IPOs blocked by the regulator in recent years. 

Oil and gas related Matrix Capacity Petroleum, mining Spacs TerraGali Resources and Australaysia Resources and Minerals, and Chemara Palmea Holdings — which had sought to be Asia’s first plantation-based Spac — have all been turned down.

In addition, an associate company of Hibiscus Petroleum — the first Spac to be listed in 2011 and the only one to have successfully made the transition from Spac to an operating company after an acquisition — is also facing the possibility of being wound up.

Bleak future

To add insult to injury, Spacs have seen a rise in inflows, but not for their fundamental value. Opportunistic investors have snapped up shares on bets that these Spacs will not see their acquisitions through, and be forced to return the cash to shareholders with interest once the three-year deadline passes. 

This undermines the very premise of a Spac.

It’s not like there have been many offerings for investors to bite into anyway. Only four Spacs have listed so far in Malaysia, raising $612m between them, according to Dealogic. The share prices of all four have slumped when compared to their issue price.

All this puts the regulator in an awkward position. Spacs are facing an uncertain future, with the market no longer enthusiastic about their intended purpose. Investors are pouring money into Spacs because of an arbitrage opportunity, only to vote against their acquisitions. And issuers are finding that raising money through the vehicles is an exercise in futility.

Liquidation, by itself, does not imply failure. In mature markets like the US, acquisition vehicles are regularly liquidated, without this casting a pall over the whole asset class. But there is no denying that Malaysia's Spacs are straying away from their original purpose, and if things stay the same, then the outlook is dire.

Dire, but not irrecoverable. Right now, while things are bleakest, is the right time to chart a better future for the asset class. If market participants want Malaysian Spacs to work properly, and fulfil their intended purpose, now is the time to commit. 

  • By John Loh
  • 01 Mar 2016

Panda Bonds Top Arrangers

Rank Arranger Share % by Volume
1 Bank of China (BOC) 18.86
2 Industrial and Commercial Bank of China (ICBC) 14.39
3 China Merchants Bank Co 14.21
4 China Merchants Securities Co 8.85
5 Agricultural Bank of China (ABC) 5.90

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 China International Capital Corp Ltd 3.43 16 14.07%
2 China Securities Co Ltd 3.30 5 13.56%
3 Morgan Stanley 2.76 8 11.34%
4 CITIC Securities 1.95 6 8.01%
5 Citi 1.49 9 6.11%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 Citi 5.04 24 8.43%
2 HSBC 4.17 35 6.98%
3 UBS 3.58 19 5.99%
4 BofA Securities 3.53 11 5.91%
5 Credit Suisse 3.37 24 5.64%

Asian polls & awards

  • GlobalCapital China 2019 awards winners: Part III

    In the final part of GlobalCapital China’s awards announcement, we discuss the key innovation of 2019, and reveal the individual that has made the greatest contribution to reforming and internationalising the Chinese onshore market.

  • GlobalCapital China 2019 awards winners: Part II

    In the second part of GlobalCapital China’s awards announcement, we reveal the winning banks across Panda bonds, G3 bonds and ABS, as well as the best bank for securities services and the most impressive law firm.

  • GlobalCapital Asia capital markets awards 2019: Investment banks

    In the fourth and final instalment of GlobalCapital Asia’s capital markets awards announcements, find out which firms have been named the Best Asian Investment Bank and the Best Investment Bank in the region for 2019.

  • GlobalCapital China announces 2019 awards winners: Part I

    GlobalCapital China, previously GlobalRMB, is pleased to announce the winners of its annual capital markets awards, honouring the banks, companies and individuals that have made the biggest contribution to bridging the gap between China’s markets and the rest of the world. In part one of the awards, we reveal the most impressive issuers in the FIG, corporate and SSA categories.

  • GlobalCapital Asia capital markets awards 2019: Bonds

    In part three of GlobalCapital Asia's awards results announcements, we reveal the winning bond deals across a variety of categories. In addition, we also name the Best G3 Bond House, Best High Yield Bond House and the winner of the Best House for SRI Financing.