17/12/21

HONG KONG: Jurisdiction approves SPAC listings, clearing the way for blank cheque companies to raise capital through IPOs.

As published on scmp.com, Friday 17 December, 2021.

Hong Kong’s stock market operator will allow special purpose acquisition companies (SPACs) to list, joining global bourses from New York to Singapore in opening another fundraising avenue for start-ups.

SPACs must raise at least HK$1 billion (US$128 million) to qualify for a listing in the city, according to a statement by Hong Kong Exchanges and Clearing Limited (HKEX), the operator of the world’s third-largest capital market.

Applications will start on January 1. SPACs will be given two years to announce a transaction, which must be completed within 36 months of their formation, HKEX said.

“Our new SPAC listing regime reflects our commitment to continue to build Hong Kong’s reputation as the region’s premier capital-raising market, reinforcing its global role as a world-leading international financial centre,” the HKEX’s chief executive Nicholas Aguzin said. “HKEX is fully focused on making Hong Kong’s markets internationally attractive, competitive and diversified.”

The HKEX announcement, coming after a 45-day public consultation period, would clear the way for so-called blank cheque companies to raise capital from investors, with the purpose of buying assets – typically high-potential start-ups – within a limited period. That opens up another avenue for promising companies that would otherwise not qualify for a stock market listing to raise funds.

Hong Kong is a late comer to the SPAC frenzy, which has grown by almost three-quarters since last year, with US$139 billion raised worldwide in the first 10 months of this year, compared with US$81 billion in 2020, according to Refinitiv’s data. Singapore’s stock exchange gave its green light to SPAC listings on September 3, after New York Stock Exchange has long championed it.

Grab Holdings, Southeast Asia’s most valuable technology unicorn, was listed on the Nasdaq Stock Market on December 2 after merging with a US-listed SPAC. The Singapore super app operator, which offers everything from ride-hailing and food delivery payments and financial services, saw its Its share price dropped 45 per cent since its debut and closed at US$7.25 on Thursday.

SPACs are created – and typically anchored by well-known public figures, including celebrities, sports icons and famous entrepreneurs – with the objective of raising capital to buy assets within a period, usually between 18 and 24 months.

Their unique business models are controversial, which partly explains why HKEX has had to conduct a wide round of consultations. The market operator, which has put investor protection at the top of its priorities, will bar retail investors from dabbling in SPACs. Only professionals with at least HK$8 million of assets will be allowed to transact in the blank cheque companies.

The HKEX amended its SPAC rules after its consultation. Every SPAC board needs at least two members who are licensed by Hong Kong’s Securities and Futures Commission (SFC). The minimum number of professional investors for every SPAC has been reduced to 20, from the 30 proposed before the consultation.

Hong Kong fast-tracked its SPACs listing approval after the city’s government signalled its support. Financial Secretary Paul Chan Mo-po in March urged the HKEX to look into SPAC listings after several local tycoons listed their blank-cheque companies in the US.

The Financial Services Development Council (FSDC), whose board members are appointed by the government to promote Hong Kong as an international financial centre, also gave its full support to the HKEX proposals.

Richard Li, the tycoon who owns one of the city’s largest insurers and biggest telecommunications companies, has set up four Bridgetown SPACs, all of which are listed in New York. One of them bought Singapore’s PropertyGuru for US$1.8 billion in July.

Lawrence Ho, the son of the late Macau casino magnate Stanley Ho, listed his Black Spade Acquisition SPAC in New York for US$150 million in June.

Adrian Cheng, the executive vice-chairman of New World Development, has a US$345 million SPAC called Artisan Acquisition that is tying up with the Hong Kong genetics and diagnostic health-testing unicorn Prenetics.

The first Hong Kong SPAC listing is expected to happen soon, as financial firms have already been working with wealthy clients to be among the first to list their SPACs in the city.