New Frontier Corp: Focused on the “Chinese New Economy Sectors”, Plus a Big Anchor Investor

Late today, New Frontier Corp. filed for a $200 million IPO focused on healthcare, technology or education sectors in China, which they refer to as the “Chinese new economy sectors”.

New Frontier is headed by Chairman, Antony Leung.  Mr. Leung has a long and impressive resume that includes currently holding the title of Group Chairman of NFG as well as Group Chairman of Nan Fung Group, a leading Greater China conglomerate engaging in real estate and investment businesses. In addition, Mr. Leung was Senior Managing Director and Chairman for Greater China of The Blackstone Group L.P., from 2007 to 2014.  Prior to joining Blackstone, Mr. Leung served as the Financial Secretary of Hong Kong as well as Chairman of JP Morgan Asia Pacific.  Carl Wu, the Chief Executive Officer of New Frontier, worked with Mr. Leung at Blackstone, prior to founding NFG, where he is currently Chief Executive Officer.

Anchor Investor and Forward Purchase Agreement

The big takeaway from New Frontier’s initial filing is the Anchor Investor and the Forward Purchase Agreement.   The Anchor investor has agreed to purchase 18,100,000 Class A ordinary shares, plus an aggregate of 4,525,000 redeemable warrants, all for $10.00, or an aggregate purchase price of? $181,000,000.  This purchase will occur simultaneously with the closing of the initial business combination.   As an “inducement” to enter into these agreements, the anchor investors received 23.8% of the promote (calculated post-IPO) for no cash consideration. Wow.

Should you Buy this IPO?

If you can get your hands on some units in the IPO or in the after-market, YES. You should absolutely buy this SPAC. Why? Because the business combination is already approved thanks to the Anchor Investor.  If you can’t get any units, buy the warrants once the unit splits and starts trading.

In even the worst case scenario, you are guaranteed $10.00 for the share if you redeem or convert. However, in all practicality, this pro rata share amount will be slightly higher due to interest earned on the trust.  Plus, if this SPAC brings a stellar business combination, it should trade above trust value.  PLUS, you also have 1/2 a warrant and as we’ve seen with many SPACs, the warrants spike upon announcement of a transaction.  As an example, take Osprey Energy, which announced their business combination today and saw a jump of 48% in the price of their warrants:

Yesterday, Osprey’s warrants were trading at $0.98.  They announced their transaction with Blackstone’s Royal Resources before the opening bell and the warrants opened at $1.35.  The warrants closed at $1.45 on volume of 1,129,964 warrants traded. Not too shabby.

All told, this one looks like a winner no matter how you slice it.  Even if you hate the proposed transaction, you can always redeem/convert your share and continue to hold or trade the warrant.  Regardless, New Frontier will be closing their business combination and with a substantial amount of cash to boot thanks to the Anchor Investor.  Heads you win, tails you don’t lose.

Summary of terms are as follows:

• Focus:  Healthcare, technology or education sectors in China
• $10.00 unit comprised of one Class A Ordinary Share, 1/2 warrant
• Warrant redemption threshold: equals or exceeds $18.00 (cash or cashless exercise)
• 100% held in trust ($10.00 per share)
• 24 months to complete an acquisition 
• Limitation on redemption rights:  20% or more

Credit Suisse and UBS are co-lead managers.  Winston & Strawn LLP and Freshfields Bruckhaus Deringer US LLP are Issuer’s Counsel and Underwriter’s Counsel, respectively.