SPECIAL purpose acquisition companies or SPACs are all the rage in the United States stock markets. While these cash shells have existed for decades on public markets there, a revival seems to be taking place.
The amount of money raised by SPACs in the past 12 months has topped US$120bil, going by Bloomberg data. The fever is spreading closer to home. Indonesia’s Gojek and Tokopedia are considering floating SPACs in the US, instead of taking an initial public offering route.
SPACs are cash shells that raise money to invest in particular sectors which their management team are said to be experts in. Their maiden asset purchase uses the bulk of the monies raised.
But hang on. Wasn’t the Malaysian market home to some SPACS in recent years and didn’t that story end rather quietly? So what happened and why is Malaysia missing out on the new SPAC craze?
The SC introduced SPACs into the Malaysian market in 2009. A handful got listed but all struggled to either get their maiden acquisition voted through or to make that asset a profitable one.
One reason could be that the sector the Malaysian SPACs were mostly getting into, namely, oil and gas, was heading into some serious headwinds at that time.
Hence, it became difficult to find assets that had the potential to have attractive bottom line growth prospects and/or to find investors overly excited about the prospects.
Juxtapose that now to the situation in the US, where the underlying sector those SPACs are looking to get into is the fire hot tech sector. No wonder those SPAC shares are flying and more promoters are jumping on the bandwagon.
Going the SPAC way is also less tedious and cheaper than that of the arduous IPO process, at least in the US markets. But as a number of commentators have pointed out recently, the current SPAC craze has its risks. The Economist pointed out that if interest rates were to rise suddenly as a result of inflation, and the music were to stop in markets, the SPAC boom might end abruptly.
Second is the oftentimes unfair structure of SPACs where its promoters tend to receive shares at a much lower cost than the general investors.
Over the years, the presence of badly designed SPACs is part of the reason why these assets have underperformed the markets in the US. The good news is that some SPACs in the US are devising their own rules which are more fair and these are likely to do better.
Back home, SPACs have been designed by the Securities Commission with strict rules, such as the ability of investors to get their cash back at the point of voting for the maiden acquisition. With so much liquidity in the market and with new sectors such as technology and renewable energy holding much potential, should Malaysia seek to revive its SPAC listings?
THE way tech stock share prices are shooting up these days, the usual “dizzying heights” description would be an understatement.
The chip shortage has sent players in that ecosystem to valuations unseen before. As if that were not enough, another new breed of tech stocks are trying to follow suit.
These are more software and Internet based firms, that are banking on getting some new business stemming from the government’s launch on Friday of its new Digital Economy Blueprint.
One stock in particular has already won a deal, namely, Awanbiru Technology Bhd (formerly known as Prestariang Bhd). It continued its spike on Friday, thanks to the news that its unit Prestariang Systems Sdn Bhd is among the three companies appointed to manage cloud services for the government.
The government said on Friday that along with AwanBiru’s unit, Enfrasys Solution Sdn Bhd and Cloud Connect Sdn Bhd, will manage services provided by cloud service providers (CSPs), including Microsoft, Google, Amazon and Telekom Malaysia Bhd (TM), which had received conditional approvals from the government.
What was not revealed was the due process that the government had taken in this selection process.
Sure, it is unclear how profitable these jobs will be for those three companies, but that has not stopped punters from jumping in. Other software companies’ stocks also saw their share prices popping, despite being loss-making enterprises.
The government’s digital push is admirable but what’s left to be seen is its ability to implement the plans effectively minus any favouritism to so called “connected” parties.
Navigating past Covid-19
THE Covid-19 vaccine, starting with the first shipment from Pfizer-BioNTech, will arrive next week. With it brings the hope that the long-term start to effectively managing and controlling the pandemic will begin.
Malaysia has certainly paid the price in dealing with the pandemic. Unemployment has hit its highest in 30 years and is expected to go up a bit. The livelihoods of many have been damaged.
On top of that, people are scrambling to withdraw their savings from the Employees Provident Fund (EPF) to manage their cashflow needs for basic living. That goes to show the predicament people are in.
The amount of money withdrawn is starting to cascade with over RM20bil already channelled out and expectations are billions of ringgit more will be taken out to fund people’s needs.
The diminished funds people will have after withdrawing for emergency purposes will create another problem in the years ahead when people, especially in the lower income group, would have not enough funds to finance their retirement needs. It will then become another problem for the government to solve.
No one knows how the recovery will be but it being a V-shaped one now looks unlikely. Business conditions will accelerate once vaccines are administered to the theoretical 80% of the population, as that will give confidence to people to start resuming their lives like before. That in turn will encourage business spending and employment should pick up, but no one will know the the pace and gradient of the ensuing recovery.
The retirement crunch though will be real and what will policy makers decide? We have read suggestions of a tiered dividend payment policy to replenish those decimated accounts. That is a tough situation to navigate through.
The EPF dividend rate for 2020 will be announced before the end of February as there is much reconciling that needs to happen with the withdrawals that have taken place. Assuming a rate of 5% is declared, it will be way superior than what depositors can expect compared with their fixed deposit accounts.
The question is whether a convincing policy can be delivered on the grounds of not only compassion but a “fee” to enjoy superior returns at a risk-free rate depositors will not find anywhere else.
If a tiered dividend is to be announced, communication of reasons, purpose and timeline needs to be disseminated. Convincing people to part with what is due to them will be hard but here, a greater altruistic message needs to be communicated and understood by all.