How the Presence of SPAC and "Dual Class Shares" Boost the Presence of Unicorn Startups on the Stock Exchange

The Indonesia Stock Exchange (IDX) has made many improvements since the beginning of the year to welcome the presence of three unicorn companies. A number of relaxations have been prepared, one of which is to allow them go public using SPAC (Special Purpose Acquisition Company) and issuing dual class shares (dual class shares). These two plans are being discussed in the internal exchange.

From the statement that DailySocial Thank you, IDX Director of Corporate Valuation I Gede Nyoman Yetna Setia said SPAC and dual-class shares (DCS) is currently under internal review, discussing with authorities and stakeholders regarding the potential implementation and regulation in Indonesia.

According to him, in every process of preparing stock exchange regulations, his party will first make comparisons with several other exchanges in other countries to be able to determine best practice to be implemented in Indonesia.

“Of course, by considering several things such as Corporate Governance, protection of public investors, and conformity of regulations with applicable laws," he said.

Separately, quoting from Bisnis.com, Nyoman explained that the study being carried out by BEI was looking at the potential for implementing DCS with a structure multiple voting shares (MVS). MVS itself is a type of share that has more than one voting right for each share.

The implementation of MVS in several countries on average regulates the maximum ratio between shares and voting rights of 1:10 or 1 share has 10 voting rights. This is different from ordinary shares which only have one voting right for each share, commonly called ordinary shares.

"by" best practice In several global exchanges, the application of DCS with MVS classification will usually only be held by para founder who act as well as being company management or key parties who can ensure the sustainability of the company's vision or innovation in the long term."

Pluses and minuses of SPACs and DCS

In essence, SPAC and DCS are trends that occur in the United States as a mecca for technology companies. Amvesindo Chairman Edward Chamdani sees that if SPAC can be implemented in Indonesia, in fact this is not much different from practice reverse listing (back door listing) but with guaranteed costs and processes that are much cheaper.

“What is often feared when reverse listing is that the shell of the company suddenly has tax or legal problems. Meanwhile, the SPAC is guaranteed to be clean because it is still new. From the company you want toto mergeWith SPAC, you can also choose which sponsor you like, who can provide it value and sufficient funds," said Edward when contacted DailySocial.

The minus side also applies to founder, because they have to release a percentage of their shares and sell them at a price lower than the market price.

The practice of DCS itself is widely seen in the United States. It was recorded that 26 of 134 companies go public in 2018, 25 of the 112 newly listed companies in 2019, and 32 of the 165 newly listed companies in 2020 adopted DCS.

This fact makes exchanges in other countries such as Hong Kong, Singapore and Shanghai motivated to relax regulations so that their exchanges become more attractive, especially technology companies. Moreover, Hong Kong has previously lost when Alibaba and other big companies turned away and chose go public New York.

Edward explained that his party would really appreciate BEI's steps if DCS practices could be implemented in Indonesia because this was a new breakthrough. In the eyes of investors, DCS is not a foreign item because it is not much different from preferred shares when investors sign a shareholder agreement issued by the company during a rights issue.

Preferred shareholders (preferred share) also have higher voting rights than ordinary shares (common-share), although this practice is less common in Indonesia.

The presence of DCS, for para founder technology startups, is very meaningful because along the way the startup has most likely carried out various rounds of funding which has caused its shares to increasingly erode.

When becoming a public company, DSC functions to convince investors that under its control the company can achieve a certain vision and mission in the long term. Although founder These technically have fewer shares, but their voting rights are greater than ordinary shares.

"If the stock exchange can implement this, it will be a positive thing because on average the technology companies aredrive by the founder."

In general, when go publicThe company's benchmarks are usually seen from the financial statements and good corporate governance (GCG). Technology companies that are disruptive and innovative are strongly influenced by the founder figure to strengthen the company's vision and mission which is still abstract.

Edward also hopes that investors themselves will be more familiar with the characteristics in the future technology companies whose benchmarks are not based on EBITDA, enterprise values (EV), or price-to-earnings ratio (EP). So, even though profit and loss (P&L) is still negative, you still understand it The roadmap From these companies that are disruptive, in the next 10-20 years they will become companies that are valuable.

“The closest example is Amazon today go public, any income is always transferred into assets, so they do not provide dividends to their shareholders. With knowledge like that, investors can think long term, not just quarterly.”

Behind the sparkling promises offered by DCS, there is always a negative side to worry about because this capitalist system eliminates democratic elements. One share is no longer valued at one voting right. Google even has three types of shares, Class A, B, and C. Each Class B share has 10 voting rights filled by people within Google. Meanwhile Class A ordinary shares sold to the public are only worth one voting right and Class C has no voting rights.

Academics from Queen Mary University of London, Min Yan, adding, another debate is regarding the shift to how to contain related governance risks. Measures such as termination provisions and restrictions on differences in voting rights are designed to restrain control emanating from certain classes of voting shares and provide mandatory protection for holders of lower voting shares. However, these actions, intentional or not, jeopardize the value of different voting rights.

Such actions are a double-edged sword, not only helping to reduce governance risks but also undermining the controller's isolation from external investors and market influences.

The lack of enthusiasm for technology companies to list on the Hong Kong, Singapore and Shanghai exchanges reflects the reduced attractiveness of DCS structures when mandatory security is tight. This situation is inversely proportional to the United States, because there there are no such mandatory security measures.

Yan also stressed that key safeguard measures, including final provisions, maximum voting diversity and enhanced corporate governance standards, are strategic former before. Considering the objective of this action is to prevent potential irresponsibility and managerial opportunism by restraining the ability of controlling shareholders to exercise some of their voting rights.

Because of strategy former before which tends to be strict, unduly constrains controlling power and jeopardizes the benefits of weighted voting rights under dual class shares, then action ex post as an alternative needs to be considered.

According to him, no financial authority in Asia has a regime ex post effective and strong. The real success of DCS lies in its market acceptance. If few or no companies choose to go public with such a share structure, allowing listing of two classes would be futile.

“Therefore, I suggest more mechanism exploration ex post, such as aggregate litigation through representative processes that provide solutions to aggrieved shareholders when problems of lack of managerial accountability occur, to reduce reliance on constraints former before as mandatory security," he concluded.

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